LAHORE: As Pakistan’s coalition government gears up to unveil the federal budget 2025-26 in mid-June
According to credible sources inside the Finance Ministry and FBR that the budget will be a precarious balancing act caught between the stringent fiscal targets of the IMF and the mounting public pressure for relief.
Senior officials confirm that major tax reforms, withdrawal of select subsidies, and rationalization of expenditure are at the heart of this year’s finance bill.
While the government insists the focus will remain on stabilization, digitalization, and economic revival, early drafts suggest a heavier burden on middle-class citizens and small businesses through indirect taxes and increased levies.
“We are under immense pressure to meet fiscal deficit targets agreed with the IMF. But at the same time, we want to protect the vulnerable segments of society,” a source told media on condition of anonymity.
As part of that programme, the IMF has reportedly urged Pakistan to increase tax revenue by at least Rs1.5 trillion in FY26, reduce circular debt in energy, and phase out “untargeted subsidies.”
Accordingly, sources confirm that: GST may be raised by 1 per cent across the board, with possible expansion of its base to cover digital services, ride-hailing apps, and freelancers.
Petroleum Development Levy (PDL) ceiling may be increased from Rs60 to Rs80 per litre, impacting petrol and diesel prices further.
Electricity subsidies for commercial and industrial consumers may be slashed or removed entirely in urban areas.
Import duties on luxury and non-essential items may rise to curb the trade deficit.
While the government insists on pro-poor messaging, such as possible expansion of the BISP cash assistance and targeted food subsidies, experts fear these would be offset by the inflationary impact of indirect taxation.
LCCI President Mian Abuzar Shad told media, “Even if the government tries to shield the lowest income group, the lower-middle and middle classes will likely face the heat in fuel, electricity, school fees, and healthcare costs.”
Contrary to hopes for relief, salaried individuals may not see an increase in tax exemption thresholds.
An FBR official said proposals to revise slabs upward were “under discussion but unlikely to be approved in full.”
“There’s no fiscal room for tax giveaways this year. Even medical expense allowances or exemptions for private pensions may be capped,” the official added.
The Lahore Chamber of Commerce and Industry (LCCI), the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), and REAP have jointly expressed concern over the lack of pre-budget consultations.
Water Regime (PVT) Ltd. CEO Khalid Usman, said, “We support reforms but not at the cost of businesses that are already struggling with high power tariffs and declining exports. The government must give incentives to SMEs and exporters – not just squeeze them for more taxes.”
Budget insiders say the Public Sector Development Programme (PSDP) allocation is expected to remain close to Rs900 billion, marginally higher than last year, but much lower than the Rs1.2 trillion demanded by ministries.
Defence spending is likely to grow by 10-12 per cent, reflecting adjustments for inflation and security operations.
FBR sources also hinted at the introduction of a digital tax regime to regulate income generated from foreign platforms such as YouTube, Amazon, and freelancing websites like Fiverr and Upwork.
The proposal is to register freelancers and levy a fixed tax of 1-2 per cent on gross earnings, though it is likely to face resistance from tech entrepreneurs and the youth.
At its core, Budget 2025-26 will test the government’s ability to balance short-term political survival with long-term fiscal responsibility. With general elections potentially less than 18 months away, every decision in this budget will carry electoral consequences.
Whether the government prioritizes economic growth, IMF compliance, or public welfare – or tries to juggle all three – remains to be seen. For now, one thing seems clear: the middle class is bracing for another year of economic pain as health, education, and climate mitigation funds may again take a back seat.
