ISLAMABAD – Pakistanis are preparing for new financial From tax relief for salaried workers and exporters to higher salaries, expanded welfare programs, and major infrastructure investments, the newly approved Budget 2026-27 promises changes that could affect households, businesses, investors, and consumers alike.
Alongside relief measures, there are stricter tax enforcement, with new digital monitoring tools, and higher duties on luxury imports. After weeks of debate and several key amendments, Parliament has finally signed off on the country’s economic roadmap for the year ahead.
National Assembly approved upcoming fiscal year’s budget on Tuesday after opposition lawmakers staged a dramatic walkout. The protest followed a fiery speech by Opposition Leader Mehmood Khan Achakzai, who strongly criticised the government and accused it of undermining democratic institutions.
Budget 2026 after changes, is said to be the most wide-ranging fiscal plan in recent years, combining tax relief for salaried individuals and businesses, major increases in development spending, expanded social welfare programs, incentives for exporters and the IT sector, and an aggressive push toward digital governance and tax enforcement.
There are ambitious economic targets, including GDP growth rate of 4% and inflation of 8.2%, while tasking the Federal Board of Revenue (FBR) with collecting Rs. 15.264 trillion in taxes, representing a 17.6% increase over the previous FY.
Total federal expenditures have been set at Rs. 18.771 trillion, with debt servicing continuing to dominate public finances. Nearly Rs. 8.054 trillion will be spent on interest and debt repayments alone, meaning a substantial portion of government revenue will continue to be consumed by obligations accumulated over previous years. Defence spending has also seen a significant increase, reaching Rs. 3 trillion, reflecting the government’s prioritization of national security amid regional and global uncertainties.
Development spending remains a major feature of the budget. The federal Public Sector Development Programme (PSDP) has been allocated Rs. 1 trillion, while total national development spending has been set at Rs. 3.675 trillion. The government plans to direct substantial resources toward roads, railways, public transport systems, urban development, water projects, and energy infrastructure.
Major projects receiving funding include the N-25 Highway, the M-6 Motorway, the Karachi-Rohri section of the ML-1 railway project, Thar coal connectivity schemes, and various provincial transport initiatives. Officials argue these investments are essential for boosting economic activity, improving connectivity, creating jobs, and reducing transportation costs across the country.
Water security and energy development have also been given special attention. The government has allocated Rs. 103.1 billion for water-related projects, including the Diamer-Bhasha Dam, Mohmand Dam, and Karachi’s K-IV water supply project.
These projects are considered critical for addressing water shortages, supporting agriculture, and improving urban water access. Meanwhile, the energy sector has been allocated Rs. 116.2 billion, with a significant focus on renewable and clean-energy projects aimed at reducing dependence on imported fuels and promoting sustainable development.
Benazir Income Support Programme (BISP) will receive Rs. 838 billion during the coming fiscal year. The expanded allocation is expected to support approximately 12 million families across Pakistan, while educational stipends will be provided to around 9.2 million children. The government has also allocated Rs. 71 billion for the PM Apna Ghar Scheme, which aims to expand access to affordable housing finance and stimulate growth in the construction sector.
The budget introduces series of tax relief measures that are likely to be welcomed by both individuals and businesses. Salaried employees are among the biggest beneficiaries, with income tax rates reduced across several income brackets and the proposed elimination of the additional salary surcharge that had previously affected higher-income earners.
Businesses will also receive relief through adjustments to tax structures and reductions in super tax liabilities. Property investors and the construction sector are expected to benefit from lower withholding taxes on property transactions and the abolition of Section 7E, which imposed deemed income tax on certain properties.
Exporters and the information technology sector have emerged as major winners in the new fiscal framework. The government has proposed reducing exporters’ tax burden by lowering the relevant tax rate from 2% to 1.25%. IT exporters have been given additional certainty through the extension of the Final Tax Regime until June 30, 2029. Furthermore, businesses that generate more than 80% of their turnover from exports will now be exempt from super tax, providing a significant incentive for export-oriented industries.
The budget contains relief measures for consumers and investors. The withholding tax on foreign credit and debit card transactions has been dramatically reduced from 5% to 0.5%, making international spending and online transactions considerably less expensive. In addition, the government has proposed abolishing the Capital Value Tax (CVT) on financial assets, a move that is expected to be welcomed by investors and financial market participants. Sales tax exemptions have also been granted on sanitary pads, tampons, and contraceptives, reducing the tax burden on essential health products.
Small retailers and shopkeepers are set to be brought under a fixed-tax system through Section 99B, which the government says will simplify compliance while encouraging greater documentation of the retail economy. At the same time, customs and tariff reforms are being introduced to reduce production costs, strengthen exports, support small and medium-sized enterprises, and better integrate Pakistan’s industries into global supply chains.
Perhaps most transformative aspect of the budget lies in the government’s plan to overhaul tax administration through technology. The FBR is expected to adopt faceless assessments, algorithm-based settlements, centralized data systems, extensive use of third-party information, and real-time monitoring of production and business activity. Officials describe these reforms as a major step toward transparency, efficiency, and improved tax compliance. However, some business groups have raised concerns regarding privacy, implementation challenges, and the increasing surveillance capabilities of the tax authority.
One issue that generated significant public interest was taxation on imported mobile phones. Despite widespread expectations, the government has not reduced PTA or DIRBS tax rates on imported devices. However, a new facility has been introduced allowing individuals to pay these taxes in installments. While this will make payments more manageable for consumers, all installments must be completed before the end of the same financial year. As a result, the overall tax burden on imported phones remains unchanged.
The automobile sector witnessed major changes. The government has introduced a new Federal Excise Duty structure for imported electric vehicles based on customs values denominated in US dollars rather than Pakistani rupees. Electric vehicles valued up to $75,000 will remain exempt from FED, while vehicles valued between $75,000 and $110,000 will face a 30% FED. Vehicles exceeding $110,000 in customs value will be subject to a 40% FED. At the same time, import duties on conventional high-engine-capacity vehicles have increased sharply, reaching 86% for vehicles between 2,000cc and 3,000cc and 92% for vehicles above 3,000cc. These increases represent some of the most dramatic changes introduced during the budget review process.
Standing Committee also made several important revisions before the final approval of the Finance Bill. Proposed amendments relating to petroleum and climate support levies were removed entirely. A proposal allowing the FBR to share sectoral sales tax return data among businesses was also withdrawn. Customs penalties that were initially proposed to rise to Rs. 10 million were reduced to Rs. 5 million. Additional safeguards were introduced for taxpayers by allowing objections to externally appointed auditors and permitting scrutiny committees to include chartered accountants as non-voting members.
Changes were also made to insurance taxation. Under the revised provisions, tax exemptions on life insurance and takaful payouts will become available after four years instead of seven. Social media earnings will remain subject to a 5% withholding tax, although the wording has been simplified compared with the original proposal. Businesses with turnover up to Rs. 200 million have also been given additional flexibility regarding participation in the fixed-tax regime.
The sales tax regime saw several notable adjustments as well. The government’s original proposal to move insecticides, herbicides, fungicides, disinfectants, and similar products into the Third Schedule was dropped. Wheat bran and rice bran have been added to the list of exempt products, while certain proposed enforcement provisions relating to imported goods have been removed. At the same time, existing value-addition taxes on certain imported products remain in force.
The government is also taking Digital Pakistan vision to next level. New investments and reforms will support digital payments, the National Data Exchange Layer, artificial intelligence policy development, digital public infrastructure, and initiatives aimed at promoting a cashless economy. These measures are intended to modernize governance, improve service delivery, and support long-term economic growth through technology-driven innovation.
National Assembly passes budget 2026-27 amid opposition walkout
