Government to Pursue Fiscal Consolidation in Upcoming Budget

The government is anticipated to persist with fiscal consolidation in the forthcoming budget, aligning closely with the directives of the International Monetary Fund (IMF). A brokerage firm indicated on Thursday that the government is dedicated to upholding a primary budget surplus for the third year running.

Topline Securities stated in its Pakistan Federal Budget FY26 Preview report, “We anticipate this budget will sustain fiscal consolidation, emphasize IMF guidelines, and incorporate untaxed/low tax sectors into the tax framework.”

The report further noted, “Moreover, we consider this Budget FY26 to be highly significant from a policy perspective, as various additional legislative measures are probable, including the incorporation of Section 114c, National Tariff Policy, Captive Power Levy Ordinance, and the removal of the Debt Servicing Surcharge (DSS) cap, among others.”

Pakistan is scheduled to unveil the Federal Budget FY26 on June 02, 2025.

Potential Revenue Measures

Topline Securities projects that the Federal Board of Revenue (FBR) revenue target will be approximately Rs14.1-14.3 trillion, reflecting a year-on-year increase of 16-18%.

The firm estimates that roughly 12% of this required growth will stem from autonomous expansion, propelled by a real GDP growth of 3.6% and an inflation rate of 7.7%. The remaining 4-5% growth necessitates additional tax initiatives amounting to Rs500-600 billion.

To achieve its objective, the government is expected to implement several measures:

  • Adjust the GST calculation price of sugar from Rs72.22 per kg to the prevailing market price, potentially generating an annual incremental revenue of Rs70-80 billion.
  • Introduce a pension tax.
  • Eliminate exemptions on FATA/PATA.
  • Impose taxes on retailers and wholesalers.
  • Increase the FED on cigarettes.
  • Raise the FED on fertilizer products and pesticides by 500bps.
  • Tax the income of freelancers/vloggers/YouTubers.
  • Remove remaining exemptions or increase the sales tax on goods listed in Schedule 5, 6, and 8, including pharmaceuticals and food.
Possible Relief Measures

Conversely, the government might also reveal a series of relief initiatives in the upcoming budget, such as extending the exemption limit on salaries or decreasing the tax rate by 2.5% for all salary brackets, streamlining trade duties, a probable housing finance subsidy, inflation adjustments to the minimum salary, unconditional cash transfers, and some rationalization of the super tax.

Market Impact Assessment

Topline anticipates a “neutral effect on the market in the near term.”

However, the firm believes that the market will react favorably in the medium term, given the prospect of a stable economic roadmap signaled by the budget.

The report concludes that relations with India will maintain market volatility until a comprehensive or new peace accord is established.