From stabilization to expansion: Rs18.771 trillion budget unveiled to spur growth

ISLAMABAD, Jun 12 (APP):Federal Minister for Finance and Revenue Muhammad Aurangzeb on Friday presented an relief-oriented federal budget for fiscal year 2026-27 in the National Assembly, with an outlay of Rs18.771 trillion, aiming to build on recent economic stabilization and steer the country toward investment-driven growth after two years of fiscal consolidation and reforms.

The budget, the ruling coalition’s third in 27 months, was unveiled amid significant domestic and external economic challenges, particularly those arising from the US-Iran conflict and broader tensions in the Middle East.

Having successfully navigated severe structural shocks and averted default risks, the government’s new fiscal strategy marks a shift toward long-term economic expansion, anchored in export promotion, industrial modernization and structural reforms.

“We began this journey under challenging economic circumstances, but through prudent policies and determined efforts under Prime Minister Shehbaz Sharif’s leadership, the government has stabilized the economy and achieved significant milestones,” Aurangzeb said, adding that these gains provide a strong foundation for sustainable growth.

Paying tribute to the country’s civilian and military leadership, the minister highlighted the armed forces’ role in safeguarding national sovereignty and economic security.

Recalling last year’s events in May, he said a swift military response forced the adversary to seek peace within hours, terming the success of “Operation Bunyan-ul-Marsoos” a landmark in national history, rooted in decades of professional excellence.

He said Pakistan’s defence capabilities were now widely recognized, with several countries showing interest in acquiring Pakistani-made fighter jets, turning defence production into a source of foreign exchange.

He added that this defence strength had reshaped Pakistan’s global strategic partnerships, including the signing of a Strategic Mutual Defence Agreement with Saudi Arabia, institutionalising longstanding fraternal ties.

Elaborating on economic performance, he said that despite flood-related losses and regional tensions, GDP growth of 3.7 percent was recorded in the outgoing fiscal year, while large-scale manufacturing grew by 6.1 percent and the services sector by 4.1 percent, the highest in four years.

Aurangzeb said Pakistan had achieved significant macroeconomic stability over the past two years, with the economy expanding to $452 billion and per-capita income rising to $1,901 from $1,751. He said reforms had strengthened public finances, restored stability and improved investor confidence despite global challenges.

He said the policy rate had been reduced from 22 percent to 11.5 percent, while foreign exchange reserves had increased to $17 billion, enough to cover three months of imports. Workers’ remittances reached $38 billion during the first 11 months of the current fiscal year and were expected to rise to $41 billion by year-end.

The minister said the tax-to-GDP ratio improved from 8.5 percent to 10.3 percent, while the fiscal deficit narrowed significantly and was projected to decline to four percent of GDP by year-end. Inflation averaged 4.5 percent compared to 23.4 percent a year earlier, though regional tensions in the Middle East could push it close to seven percent.

He said improved economic fundamentals had led to sovereign rating upgrades, renewed access to international bond markets, and successful issuance of Eurobonds and a Panda bond.

Aurangzeb added that the Pakistan Stock Exchange recorded strong growth, with corporate profitability rising by 22 percent, 173,000 new investors entering the market, 11 IPOs launched, and 39,000 new companies registered, while several major international firms expanded investments in Pakistan.

The minister said the government was committed to completing the privatisation of state-owned enterprises, including GENCOs, DISCOs, banks, insurance companies and airports. He added that letters of intent for the privatisation of three DISCOs had already been issued.

He said several initiatives were being introduced to ensure that the benefits of growth reach ordinary citizens, including five new schemes. Under the “Zarkhez” programme, more than 750,000 small farmers would receive loans worth Rs300 billion through a fully digital process.

He said digital inclusion had expanded significantly, with merchants linked to digital payment systems rising to 1.69 million from 500,000 in a year. Digital banking users increased from 95 million to 133 million, while annual digital transactions rose from 6.9 billion to 10.1 billion.

He added that 92 percent of workers’ remittances were now routed through formal banking channels.
In the taxation sector, the finance minister proposed a series of tax relief measures for the salaried class, businesses, exporters, the construction sector, IT industry and women’s health products.

He said the government was fully aware of the difficulties faced by salaried employees in both public and private sectors and had decided to provide relief across four income slabs.

He said the tax rate for salaried individuals earning between Rs2.2 million and Rs3.2 million annually was proposed to be reduced from 23 percent to 20 percent. Similarly, the tax rate for incomes between Rs3.2 million and Rs4.1 million was proposed to be lowered from 30 percent to 25 percent.

For salaried taxpayers earning between Rs4.1 million and Rs5.6 million annually, the rate would be reduced from 35 percent to 29 percent. Likewise, the tax rate for incomes between Rs5.6 million and Rs7 million was proposed to be cut from 35 percent to 32 percent.

He said relief was also extended to businesses through abolition of the one percent super tax on income between Rs150 million and Rs500 million, and reduction of the super tax rate from 10 percent to 8 percent on income exceeding Rs500 million. The super tax on exporters would also be abolished, while surcharges on banks, oil and gas companies, and fertiliser firms would remain unchanged.

To promote construction activity, withholding tax on property purchases by filers was proposed to be reduced from 2.5 percent to 1.5 percent, while tax on property sales would be cut from 5.5 percent to 2.75 percent.

The minister said the concessional 0.25 percent Final Tax Regime (FTR) for the IT sector would be extended for three years till June 30, 2029, adding that IT and IT-enabled services exports were expected to reach $4.5 billion by year-end.

He said advance income tax on exports would be reduced from 2 percent to 1.25 percent, while withholding tax on credit and debit card transactions would be slashed from 5 percent to 0.5 percent to promote digital payments and economic documentation.
Aurangzeb announced abolition of Capital Value Tax (CVT) on foreign assets and certain overseas transactions, as well as elimination of taxes on sanitary pads and contraceptives.

The minister said the government would broaden the tax base through a fixed tax scheme under Section 99B of the Income Tax Ordinance for shopkeepers and retailers with annual incomes of up to Rs200 million.

He said a National Faceless Centre, Algorithmic Assessment Mechanism and Central Data Hub would be established to automate audits, assessments and taxpayer services through the FBR IRIS portal, supported by third-party data integration and digital monitoring systems aimed at improving transparency, compliance and documentation.

He further announced expansion of production monitoring and digital invoicing systems, adding that imported SUVs and vehicles with engine capacities of 2,000cc to 3,000cc would attract 62 percent Federal Excise Duty (FED), while vehicles above 3,000cc would face 66 percent FED.

He said tax relief measures for motorcycles, rickshaws, vehicles and buses would continue, while duty on imported electric trucks would be reduced by one percent.

The government would also grant tax exemptions on over 100 categories of raw materials used in manufacturing medicines for cancer and other diseases, and reduce duties on export-oriented industries, the chemical sector, SMEs and their industrial inputs.