The federal government has shared a Rs17.5 trillion budget framework with the Pakistan Peoples Party (PPP), its key coalition partner. The PPP approved an 18% increase in the defence budget, citing rising tensions with India. However, it criticized the proposed development spending as too low.
Officials briefed the PPP delegation, led by Bilawal Bhutto Zardari, on the upcoming budget. It will follow a tight fiscal policy and aim for a high primary surplus. Prime Minister Shehbaz Sharif met the PPP team alongside his economic advisers. The total budget size is expected to stay under Rs18 trillion. This is lower than the previous year’s because of reduced interest payments after a sharp cut in the policy rate by 11%.
Both the PML-N and PPP agreed to boost military spending. The proposed defence budget will rise by 18%, reaching over Rs2.5 trillion. Sources said this decision is based on current security challenges, especially with India. The PPP endorsed this increase in defence allocation, calling it necessary for national security.
However, the two parties differed on development plans. The government proposed Rs1 trillion for the Public Sector Development Programme (PSDP). The PPP demanded more. This year’s allocation was Rs1.1 trillion, but actual spending was far lower. One participant suggested setting the new PSDP at the same level as this year’s actual development spending.
Planning Minister Ahsan Iqbal did not comment on the PPP’s criticism of the development budget. The government is aiming for strict fiscal control. It plans to double the primary surplus compared to this year, as part of its IMF commitments. To resolve PPP’s concerns, a new committee led by Deputy Prime Minister Ishaq Dar has been formed. The final budget will be tabled before Eid holidays.
Government employees may receive a 6% salary hike and a 7% pension raise. These increases are designed to stay within IMF limits, which require keeping salary-related spending flat as a share of GDP. However, the final percentage might be higher. Inflation is expected to average around 5%. Sources said the salary adjustment will match the inflation rate.
Some in the PPP called the Rs14.3 trillion tax target unrealistic. They pointed to a sluggish economy, struggling businesses, and a decline in large-scale manufacturing. The party asked the government to focus on sectors that support growth and avoid harmful measures, especially in agriculture. The PPP also pushed for tax relief for salaried workers, who were hit hard in last year’s tax regime.
Sources confirmed that high-end pensioners may face new income taxes. However, the salaried class may receive relief. The tax-free salary threshold might increase from Rs50,000 to over Rs83,000 per month. This change would benefit higher earners too. Officials are also considering lowering tax rates for all income slabs by 2.5%, which would reduce the effective tax rate by 3%.
Adjustments in slab income levels are under discussion to ease the burden on taxpayers. Currently, income over Rs333,000 per month is taxed at 35%. This may be reduced to 32.5%. The 15% tax on Rs183,000 monthly income might be cut to 12.5%. Monthly income above Rs267,000, now taxed at 25%, may be brought down to 22.5%. The government is considering a new 20% tax slab, but IMF resistance to more than four slabs may block it.
The 30% rate for incomes up to Rs333,000 could be reduced to 27.5%. PML-N Senator Anusha Rehman urged the government to shift focus from salaried workers to traders. She cited a report showing salaried people paid Rs391 billion in tax over nine months—10% of total income tax. Traders paid only Rs26 billion, just 0.6%.
An FBR official said pensions must be taxed as income. The proposed tax will only affect high pensions, such as those over Rs200,000 per month. This will impact mainly retired judges, generals, and top bureaucrats. The proposed tax rate on pensions would be four times lower than for salaries.
The government aims to raise Rs14.3 trillion in taxes next fiscal year. This is a 16% increase from this year’s revised target. Of this, Rs1.5 trillion will come from economic growth. However, the IMF has asked for Rs500 billion more in new tax measures.
Officials claimed FBR’s tax enforcement is stronger now, as shown by a 26% increase in collections despite only 7% economic growth. They argued no new taxes are needed, but IMF wants fresh revenue measures.
The Senate Finance Committee reviewed budget demands from industries. The poultry sector reported that FBR charges Rs5,190 in taxes on one parent chicken. Chairman FBR Rashid Langrial promised a review.
The dairy industry asked to cut sales tax on packaged milk from 18% to 5%, citing falling sales. The FBR is considering three options—cutting it to 5%, 10%, or 15%. But no final decision has been made. Member Tax Policy Dr. Najeeb Memon warned that lowering the rate to 5% would reduce tax revenues by Rs20 to Rs30 billion.
Fruit juice makers also demanded relief. Their sales have fallen 45% in two years due to heavy taxation. The representative said that lower demand for juices has reduced mango purchases by 66%, affecting farmers badly. They want the federal excise duty cut from 20% to 15%.
On Saturday, the government issued a Presidential Ordinance to recover taxes from bank accounts. This step came after court rulings and aims to prevent evasion.
On Monday, Prime Minister Shehbaz Sharif asked the Ministry of Information to explain the reasons behind the ordinance to the public.
