ISLAMABAD: The Federal Budget for the fiscal year 2025–26 (FY26) has taken a cautious yet strategic route by prioritizing economic discipline under International Monetary Fund (IMF) guidelines, while offering measured relief to the salaried class and taking concrete steps to reduce losses in cash-draining state-owned enterprises (SOEs).
This balanced approach is seen as a signal of fiscal responsibility, with clear intentions to broaden revenue streams and reduce inefficiencies.
For the capital markets, the budget presents a favorable environment.
Key factors include an increase in income tax on interest income from 15% to 20%, no alterations in the capital gains or dividend tax structure, a cut in super tax for mid-sized companies earning up to Rs 500 million annually, and the elimination of sales tax exemptions in the FATA/PATA regions.
This latter move is expected to benefit listed companies that were previously at a disadvantage due to dumping practices.
Strong Revenue Targets and Realistic Growth Assumptions
The budget has outlined a total outlay of Rs17.6 trillion, reflecting a modest 2% year-on-year increase.
The government is aiming for a GDP growth rate of 4.2%, with a fiscal deficit target of 3.9% of GDP and a primary surplus goal of 2.4%.
On the revenue side, gross receipts are targeted at Rs19.3 trillion (up 15% YoY), while the FBR has been tasked with collecting Rs14.1 trillion, up 19% from last year.
Income tax revenue is expected to rise 18%, sales tax by 19%, and customs duties by 21%.
Federal Excise Duty (FED) revenue is forecasted to grow by 15%, and the petroleum levy is projected at Rs1.5 trillion (a 26% increase).
Non-tax revenue is expected to reach Rs5.1 trillion, though State Bank profits are anticipated to dip to Rs2.4 trillion.
Disciplined Spending and Debt Servicing Adjustments
Expenditures for FY26 are estimated at Rs16.3 trillion, showing a 1% decline from the previous year.
Development spending under the Public Sector Development Programme (PSDP) has been significantly raised to Rs1.0 trillion, a 71% jump from last year.
The defense budget will rise 17% to Rs2.6 trillion.
Meanwhile, debt servicing will reduce by 8% to Rs8.2 trillion, driven by a 9% drop in domestic debt costs and a 3% decline in external payments.
Subsidies are also expected to decline 14% to Rs1.2 trillion, thanks to substantial reductions in support for KE and the power sector.
Fiscal deficit financing will primarily depend on domestic banks (97%), with smaller contributions from privatization and external sources.
