ISLAMABAD: Finance Minister Muhammad Aurangzeb is set to unveil Pakistan’s federal budget for fiscal year 2026-27 today (Friday), with a proposed total outlay of around Rs18 trillion.
The upcoming budget is expected to provide relief to the salaried class through reductions in income tax rates and a proposed 10 percent increase in government employees’ salaries.
According to budget proposals, tax rates for individuals earning between Rs1.2 million and Rs2.2 million annually may be reduced, while employees drawing monthly salaries of Rs100,000, Rs200,000 and Rs300,000 are also likely to benefit from tax relief measures.
Sources said the government is considering reducing the Super Tax, while the Corporate Income Tax rate is expected to remain unchanged. The budget may also abolish the existing 10 percent surcharge on annual incomes exceeding Rs10 million and expand income tax slabs for salaried individuals from six to eight categories.
The government is expected to set revenue targets of Rs7.413 trillion under direct taxes, Rs4.727 trillion through sales tax, Rs1.651 trillion from customs duty and Rs1.043 trillion via federal excise duty.
The Petroleum Development Levy (PDL) collection target is likely to be fixed at Rs1.727 trillion, compared to the current fiscal year’s target of Rs1.468 trillion, while a gas surcharge collection target of Rs151 billion is also under consideration.
For debt servicing, the government may allocate Rs6.652 trillion for domestic debt and Rs1.107 trillion for external debt repayments. New taxation measures worth Rs220 billion are also expected to be introduced.
On the expenditure side, non-development spending for federal ministries and departments is proposed at Rs1.07 trillion, while more than Rs1.1 trillion may be allocated for pensions.
The allocation for the Benazir Income Support Programme (BISP) is expected to rise to Rs838 billion, with the quarterly stipend likely to increase from Rs13,000 to Rs14,500.
In the automobile sector, the government is proposing an Environmental Levy on luxury vehicles, including a 10 percent levy on petrol and diesel vehicles with engine capacities between 2001cc and 3000cc, and 19.5 percent on vehicles exceeding 3000cc. The measure is expected to generate approximately Rs25.8 billion in revenue.
To encourage local manufacturing, taxes on imported raw materials may be reduced to one percent, while import duty on parts used in local production could be cut from 10 percent to five percent. Taxes on imported auto parts for the domestic industry may also be reduced from 20 percent to 10 percent.
Manufacturers will be required to comply with 62 safety and quality standards, while concessional tax incentives may be withdrawn for companies failing to localise parts production.
For imported SUVs and jeeps, the current tax rate is likely to be reduced by two percentage points from 50 percent, with a gradual reduction to 40 percent planned over the next five years.
However, locally manufactured hybrid vehicles may face a significant increase in sales tax from 8.5 percent to 18 percent, while electric vehicles, hybrids and plug-in hybrid vehicles are expected to become more expensive under the proposed measures.
Meanwhile, the Climate Levy on petroleum products is expected to double from Rs2.5 per litre to Rs5 per litre in the next fiscal year.
Sources further indicated that tax adjustments could lower the prices of several consumer products, including cosmetics, face powder, mascara, shampoo and soap.
