The Senate Standing Committee on Finance and Revenue, chaired by Senator Saleem Mandviwalla, met Thursday to discuss the anomalies in Financial Budget 2025-26.

The Committee had an extensive discussion on several anomalies in the Financial Budget 2025–26. Members of the Chambers of Commerce briefed the Committee on these anomalies, with specific focus on the clauses granting powers to the FBR to arrest on the basis of suspicion. They warned the Committee about the potential misuse of such clauses for the harassment of the business community.

KCCI slams FBR for its ‘authoritarian’ conduct, ‘indifference’

In a presentation before the committee, President Karachi Chamber of Commerce & Industry (KCCI) Muhammad Jawed Bilwani highlighted that FBR has authorized Inland Revenue officers to arrest directors, CEOs, CFOs, and individuals involved in tax fraud under Section 37A of the Sales Tax Act, 1990. We cannot allow FBR to be the judge, jury and executioner of tax payers. This is a democratic country where citizens rights are protected by the judiciary. This act will cause harassment and corruption on a level unseen before eventually leading to taxpayers closing their legitimate businesses, moving their Investments abroad and Ease of doing Business Index sinking.

To an all time low. The whole point of this law is to catch people who issue fake or flying invoices so is it not easier to simply specify this law for this specific offence.

Jawed Bilwani further specified that the Definition of tax fraud is too vague and extremely open ended and there are apprehension of its abuse. Therefore, the said definition be restricted to make it applicable only in cases of issuance of fake and flying invoices.

President KCCI stated that the new section14AE gives

FBR very scary powers to force taxpayers into registering for sales tax. This law should be made softer in stance and powers need to be curtailed to an understandable extent.

The language of this law will scare anyone even thinking of registering as a Sales Tax filer from entering the regime.

This is a classic example of carrot and stick. We do not endorse this measure and urge FBR to have a more reasonable approach.

Jawed Bilwani added that e-bilty should be removed under section 40C to remove local transfer of goods within Pakistan from this act.

Digital invoicing should be implemented in a phase wise manner starting from multinationals and Public Limited entity with a Turnover in excess of Rs10 billion and then moved to the medium and ultimately small sized taxpayers with respect to turnovers.

The system should be made absolutely free. Currently only one integrator certified by FBR is free while others are at cost.

Copyright Business Recorder, 2025

The approved financial plan projects total receipts of Rs 73.1 billion against expenditures of Rs 81.9 billion, yielding a budget surplus of Rs 8.2 billion—underscoring the CDA’s commitment to maintaining financial stability while undertaking ambitious modernization initiatives.

CDA’s financial strength during the current year has been bolstered by significant revenue generation efforts, most notably through a highly successful auction of commercial properties. According to official figures, CDA raised Rs. 19.56 billion from the auction of eight commercial plots and four shops, with some properties fetching bids up to 33% above the reserve price.

The auction, held from July 15 to 17, drew an encouraging response from financially sound and serious investors, even under stricter conditions such as a reduced installment plan of one year and a lower upfront payment discount of only 5%. The performance reflects growing investor confidence in Islamabad’s real estate potential and the Authority’s credibility.

The 14th meeting of the CDA Board, convened at CDA Headquarters under the chairmanship of Chairman CDA and Chief Commissioner Islamabad Muhammad Ali Randhawa, ratified the auction results and budget estimates. The meeting was attended by key board members including Member Administration and Estate Talat Mehmood, Member Finance Tahir Naeem, Member Environment Esfandyar Baloch, Member Planning Dr. Khalid Hafiz, and Member Engineering Syed Nafasat Raza. Professor Dr. Muhammad Ali, Vice Chancellor of Punjab University, participated via Zoom.

During the meeting, the Board gave approval for the appointment of a top-tier audit firm to improve the Authority’s financial transparency and asset oversight. Out of four chartered firms that submitted bids, KPMG was selected after meeting the technical evaluation criteria. The selected firm will conduct a thorough five-year financial audit and review all CDA assets, with a six-month completion timeline directed by the Chairman. This marks a serious step toward strengthening internal financial controls and aligning with international accounting standards.

The budget for 2025–26 also introduces key reform initiatives aimed at digital transformation and improved public service delivery. The CDA is transitioning to a fully cashless transaction model, with immediate implementation in water bill collections and other citizen-facing services. This move is designed to enhance convenience, reduce leakages, and boost institutional efficiency.

In a bid to revamp civic services, the Board also approved the fresh tendering of the city’s solid waste management system across both urban and rural regions. The revamped waste management plan will be divided into multiple operational zones, inviting participation from both national and international firms to improve competitiveness and service quality. The Rawalpindi Waste Management Company (RWMC) has been granted a three-month extension for continued waste transportation services until the new contracts are finalized. The Chairman instructed immediate upgrades to waste transfer stations and dumping sites to address public complaints and health hazards.

As part of internal administrative restructuring, a three-member committee comprising Member Administration, Member Environment, and Member Finance was constituted to assess the seniority of a BS-19 Director in the Environment cadre. In addition, new promotion criteria for sub-engineers have been drafted and will be forwarded to the Service Rules Committee for review and formal adoption.

Among the strategic priorities highlighted for the fiscal year are infrastructure expansion, tourism promotion, and the implementation of a new governance model under the guidance of a globally recognized financial consultancy firm. This governance framework will guide CDA’s policy and project execution through a performance-based structure focused on transparency, accountability, and data-driven decision-making.

The surplus budget, record auction proceeds, institutional reforms, and transition toward digital systems collectively represent a bold shift in CDA’s operational philosophy. The Authority appears focused not just on revenue generation and service delivery but on transforming Islamabad into a modern capital city governed by principles of smart urbanism and financial discipline.

Copyright Business Recorder, 2025

The attendance of members kept fluctuating during the budget session, it added.

The budget session began on a high note, with 83 percent attendance recorded during the first sitting when the Finance Bill, 2025, was introduced.

However, as the House progressed into the general discussion on the budget, attendance declined, hitting the lowest 57 percent on the third sitting.

The attendance resurged again at 79 percent on the final day of the general discussion, which also included deliberations on Senate recommendations and charged expenditures.

A remarkable increase was observed towards the end of the session, with attendance rising above 90 percent during the voting on demands for grants and the Finance Bill.

The highest attendance was 93 percent recorded on the day the Finance Bill was passed.

The lawmakers raised concern on the absence of government ministers during the budget discussion, prompting the chair to direct the government members holding finance-related portfolios to come to the floor of the House.

An analysis of the attendance and the leaves applications read during the proceedings shows that 235 members 75 percent of the current strength missed at least one sitting during the session. However, only 79 (34 percent) of them submitted an application seeking leave from the House for their absence. A total of 22 female MNAs including 19 on reserved seats and three on general seats (41 percent of total female membership) attended all sittings. Among seven minority members, all attended more than half of the sittings including three MNAs who have attended all sittings. Regionally, across all provinces, the majority of MNAs attended more than half of the sittings.

The Islamabad Capital Territory (ICT) recorded the highest percentage, with all three of its MNAs attending every session.

In Sindh, 68 MNAs (86 percent) attended more than half of the sittings, including 20 who were present at all.

Punjab saw 140 MNAs (85 percent) attend more than half of the sittings, with 37 attending every session.

From Khyber Pakhtunkhwa, 39 MNAs attended more than half of the sittings, including 15 who were present at all.

In Balochistan, 15 MNAs (75 percent) participated in more than half of the sittings.

The majority of lawmakers from the Pakistan Muslim League-Nawaz (PML-N), Pakistan People’s Party Parliamentarians (PPPP), Muttahida Qaumi Movement Pakistan (MQMP), and Sunni Ittehad Council (SIC) attended more than half of the sittings.

The federal minister for Finance and Revenue, who is a senator, attended nine (69 percent) sittings.

The minister of State and the Parliamentary Secretary for Finance and Revenue, both of whom are MNAs, were present in 11 sittings (85 percent).

Notably, the federal minister for Economic Affairs, also a Senator, did not attend any sitting during the session, despite his portfolio closely related to the issues discussed during the budget session.

Copyright Business Recorder, 2025

Pakistan’s tax structure to this day relies heavily on indirect taxes, whose incidence on the poor is greater than on the rich, which effectively implies that the burden on the poor continues.

Direct taxes, based on the ability to pay principle, accounted for nearly 49 percent of total collections; however, this does not take account of the fact that 75 to 80 percent of these collections are withholding taxes levied in the sales tax mode, which is an indirect tax — an exercise that the Auditor General of Pakistan noted and recommended to the FBR to abandon though with no success.

The Federal Finance Minister is on record as having stated that the extraordinary law enforcement powers of the FBR, approved in the Finance Bill 2025, envisage effective implementation of sales tax regimen rather than on income, and Chairman of the FBR, Rashid Mahmood Langrial, is on record as having stated that the increase in collections from sugar industry are attributable to improved enforcement.

In this context, it is relevant to note that successive governments, including the incumbent, focused on increasing the number of filers through access to NADRA data; however, this led to a rise in the number of filers with little increase in revenue.

At the same time the FBR continues with its long-term practice of: (i) sustaining the reliance on indirect instead of direct taxes to ensure that the relatively poorer sections of society are not paying the bulk of revenue collections. In this context, it is relevant to note that the steady rise in reliance on petroleum levy (even though it is not collected by the FBR) is budgeted to generate 1.468 trillion rupees this year, which is an indirect tax and impacts on the transport costs of the poor and vulnerable; (ii) making the tax structure non-anomalous by taxing all units operating within a sector equally irrespective of ownership; (iii) failure to rationalise digital infrastructure taxes with the intent to make them more competitive against a basket of countries and fixing the tax rates for at least 10 years and fixing future spectrum flood prices while delinking the price from the dollar as suggested by a recent Asian Development Bank report; (iv) resistance to taxing certain sectors to enable their manipulation, example being the low tax prevalent on the stock market.

It is relevant to note that India on average collects more than 100 billion rupees from this source against Pakistan’s less than 5 billion rupees per annum; and (v) farm income tax, tax on traders, and retailers and builders, sectors which under the ongoing IMF programme will be taxed from this year onwards; however, time will tell how successful they have been.

The government would no doubt argue that the attempt to raise FBR collections through raising existing taxes or bringing more items under the sales tax net or better enforcement is to ensure that the budget deficit is sustainable yet a better option would have been to reduce its own current expenditure for the time that is required to implement these structural tax reforms.

Sadly, the budget for the current year envisages a rise in all items (10 percent raise in civil administration) except subsidies (for the poor though they remain untargeted) and mark-up which is expected to decline not because government borrowing is budgeted to decline but because the cost of borrowing, dependent on the discount rate, is projected to decline which the IMF, as per its reports on its website, does not appear to regard as a done deal.

To conclude, structural reforms to amend the existing tax structure are the way forward rather than the measures currently in focus to increase revenue.

Copyright Business Recorder, 2025

In a letter to Finance Minister, Chairman APTMA, Kamran Arshad has drawn his attention to the commitment made in the Federal Budget 2025–26 to impose 18% sales tax on all imports of cotton fiber, yarn of all kinds, and greige fabric, while retaining these items under the Export Facilitation Scheme (EFS).

“Our original request was for their complete exclusion from the EFS considering the damage caused by unnecessary imports to the domestic industry. Nevertheless, the important correction of equalizing the tax treatment of local and imported supplies for exports was pledged during announcement and presentation of the budget,” Chairman APTMA said adding that it has now been a month and a half since the Budget speech and almost three weeks since the Budget was passed; in accordance with the Deputy Prime Minister’s Committee’s decision, sales tax was to be imposed from July 15, onwards and this date has also passed. Yet the requisite SRO has not been issued.

The Association further stated that delay coincides with the arrival of the new cotton crop, for which there are no buyers in the market. The tax disparity has eroded demand for locally grown cotton and domestically manufactured yarn and greige cloth.

Given the continued uncertainty regarding the imposition of equivalent sales tax on imports, traders and mills are unwilling to off-take the new crop. Textiles account for over half of Pakistan's exports and represent one of the few sectors showing robust growth-exports increased by $1.5 billion in FY 2024–25. However, during the same period, textile sector imports rose by approximately US$1.5-2 billion, yielding a net loss for the balance of payments.

The current account remains precariously balanced due to temporarily low international oil and gas prices. This situation cannot be sustained in the medium or long term. Pakistan must increase the share for domestic value addition in its exports, yet current policy incentives run counter to that objective.

“We submit that any further delay in issuing the promised SRO will exacerbate mill closures, businessmen migrating abroad, and the loss of hundreds of thousands of jobs. To safeguard the livelihood of our growers, spinners, and exporters-and to uphold the Federal Government’s own fiscal and export targets we request that the SRO for imposition of 18% sales tax on cotton fibre, yarn, and greige cloth imports be issued without further delay,” he maintained.

Copyright Business Recorder, 2025

The swift, strategic, and professional conduct of Pakistan’s armed forces in that conflict was instrumental in preserving regional equilibrium and asserting Pakistan’s deterrence capabilities.

Balancing the books and the battlefield: Pakistan’s fiscal strategy for FY2025–26—III

Yet, fiscal execution remains a critical challenge. The success of the PSDP, tax administration reforms, and development programs depends on institutional coordination, transparency, and political continuity. Past delays in disbursements and bureaucratic inefficiencies have often undermined well-conceived plans.

Pakistan’s external vulnerabilities — such as oil price shocks, currency volatility, and declining global demand—also pose considerable risks. Furthermore, the ambitious remittance and export targets hinge on stable labor markets abroad and sustained global economic recovery.

Balancing the books and the battlefield: Pakistan’s fiscal strategy for FY2025-26 – II

Pakistan’s FY 2025–26 federal budget reflects a nuanced approach to governance — balancing fiscal consolidation with strategic investment, rewarding national achievements while laying the groundwork for sustainable growth.

Defense, infrastructure, agriculture, IT, and SMEs receive focused attention, while structural reforms target long-standing inefficiencies in taxation and public finance.

Balancing the books and the battlefield: Pakistan’s fiscal strategy for FY2025–26—I

More than just numbers, this budget encapsulates a national mindset that prizes resilience, discipline, and vision. If implemented with resolve and integrity, it holds the promise to be a turning point for Pakistan’s economic journey — a transition from crisis management to long-term planning. (Concluded)

Muhammad Sheroz Khan Lodhi (Karachi)

Copyright Business Recorder, 2025

The policy aims to stimulate export growth of 10–14%, while imports are expected to grow by 5–6% — a slower pace intended to narrow the trade deficit.

To establish a benchmark for tariff rationalization that is both transparent and comparable, the policy takes into account existing tariff structures in regional economies. The NTP 2025–30 targets a simple average tariff rate of 9.7% by FY 2029–30, implying a more than 20% annual reduction in the first two years, followed by a 5–10% annual reduction in the subsequent years.

PM orders urgent overhaul of National Tariff Commission

The NTP 2025-30 sets a target of achieving a simple average tariff of 9.70% by the terminal year 2029-30. This corresponds to about more than 20% annual decline in the first two years and a 5-10% annual decrease in subsequent years.

This will be done by taking a comprehensive approach that encompasses (1) Readjustment of CD slabs to 4 slabs (0%,5%,10%, &15%) from the existing 5 slabs in 5 years (2) Reduction in CD to a maximum of 15% in 5 years (3) Elimination of RDs in 5 years (4) Elimination of ACDs in 4 years and (5) Phasing out of 5th Schedule in 5 years The reduction in tariff rates will bring the trade weighted average from the current 10.6% to below 6% in a period of 5 years.

The current tariff structure follows a cascading principle. There are 5 slabs i.e.0, 3, 11, 16, and 20 with some peaks and specific rates. The uneven spread in tariff slabs or tariff escalation not only inhibits industrialization but also diversification.

To simplify tariff structure and remove uneven spread between tariff slabs, in the first year, the current tariff slabs of 0%, 3%, 11%, 16% and 20% will be adjusted as 0%, 5%, 10%, 15% and 20%. Peaks in tariffs above 20%, mainly in the auto sector, will also be reduced gradually.

Over the last 15 years, ACD and RD in addition to Customs Duty (CD) have been used as a tool for revenue enhancement. As a result, the number of products subject to ACD and RD has increased manifold. Out of a total of 7,589 tariff lines, around 7,476 tariff lines are subject to ACDs, and 1,996 tariff lines have been subject to RDs. Excessive use of Additional Customs Duties (ACDs) and Regulatory Duties (RDs) in addition to already high Customs Duties (CDs) has not just made the tariff structure high, complex, and protective but unfair, non-transparent, and prone to elite capture. All ACDs will be eliminated gradually in the next 4 years.

Few products at 35% CD are subject to Auto sector policy (AIDEP 2021-26), therefore, the auto sector ACDs will be eliminated gradually from July 1, 2026.

RDs are mostly serving the purpose of raising revenues and providing extra protection to already protected industries. Moreover, the ad-hoc imposition of RDs over time has resulted in overall discriminatory tariffs, which is evident from high dispersion in RD rates on similar products. First, the RD rates will be harmonized as lowest on raw material, moderate on intermediate and capital goods and highest on consumer goods and will be placed in slabs of 0%, 5%, 10%, 15%, 20%, 30%, 40% and 50%.

Moving forward, the following schedule will be followed to eliminate RDs in 5 years. The rates are indicative and actual RD rates will be adjusted in the same range (indicated against each year) by the Tariff Policy Board and the government on year-to year basis.

The existing RDs slabs will be completely eliminated in 5 years, keeping in view the annual targets for reduction in RD rates.

The 5th Schedule of the Customs Tariff provides concessions or exemptions to certain domestic industries. Starting from a few products in 2013, the number of products claiming concessions or exemptions under the 5th schedule has increased manifold during the last few years. It consists of a long list of products divided into different parts.

In FY 2023-24 the 5th Schedule consists of eight parts, each part contains different tables for different types of products. However, what makes the 5th Schedule more complex is the various conditions attached to the listed products. The product specific conditions under the 5th schedule require a wide range of documentation and paperwork. This not only gives huge discretionary powers to EDB and IOCO but also increases cost of compliance.

Moreover, as most of the concessions are available only to specific manufacturers, these conditions are seen as restrictive and biased towards large businesses and manufacturers. Small businesses that cannot incur costs for attaining certificates or approvals and related paperwork have to purchase inputs from commercial importers that import at MFN rates.

The tariff structure under the Fifth Schedule is different from general tariff structure. There are two ways in which tariffs under the Fifth Schedule are different from the general tariff structure. First, the 5th Schedule has custom duty rates beyond the slabs applicable to the 1st Schedule. Second, most of the products in the schedule are exempt from Regulatory Duty (RD) and Additional Custom Duty (ACD) that are otherwise applied in the 1st Schedule of Customs Act, 1969.

Resultantly, as the number of exemptions and concessions under the 5th Schedule has increased over the years, its burden on the federal exchequer is also growing exponentially. The largest portion of customs duty expenditure for FY 2022-23 is given under Fifth Schedule amounting PKR 190.688 billion registering a growth of 10.24% compared to 2021-22.

In view of distortions in tariff structure created by the 5th Schedule, all the products/tariff lines will transition from 5th Schedule to 1st Schedule in next 4-5 years in a phased manner. In this process some concessions will be withdrawn, and some concessions will be generalized (made available to all: (i) the products that have virtually no concession under the 5th Schedule shall be transferred to the 1st Schedule;(ii) products with concessionary rates will be transferred to the 1st Schedule either under MFN rate or under the slab closest to the concessionary rate; (iii) products that have specific conditions because there is no product-specific tariff heading in the 1st t Schedule will be moved to the 1st Schedule by creating a new tariff heading; (iv) products falling under the tariff heading “others” will be transferred from the 5th Schedule to 1st Schedule by creating separate headings with the description as given in the 5th Schedule; and ( v) Minimally used concessions will be withdrawn.

In line with the principles and objectives of this policy, the auto sector tariffs will also be rationalized to enhance competitiveness, productivity and consumer welfare including removing any quantitative restrictions on import of old/used vehicles subject to quality and environmental standards and differential tariff structure.

The Auto Industry Development and Export Policy (AIDEP) 2021-26 is valid till June 2026 and the new auto policy will be introduced from first July 2026 where a substantial reduction on duties related to the auto sector will be carried out including review of SRO 655 (I)/2006 dated 22-Jun-2006, SRO 656(I)/2006 dated 22- Jun-2006, SRO 693 (I)/2006 dated 1-Jul-2006, elimination of all ACDs and RDs and reduction in the CD rates.

Various models including Macro model, Export Forecasting Model, Global Trade Analysis Project (GTAP) Model import tariff revenues show a loss of about PKR 500 billion in static calculations however, considering all other factors ie, increased demand, economic growth, transparency, decrease in under invoicing, smuggling, compliance cost etc., GTAP calculations indicate a positive impact on revenues (7-9%).

The major impact of tariff reforms will be on exports. GTAP calculations show that exports will increase by (10-14%); imports will also increase (by 5-6%) but at a slower rate than the increase in exports thereby improving the trade deficit. Resources will move to more efficient and productive sectors as production in export-oriented sectors will pick up. Industry will grow, net employment will increase, and investment will strengthen.

Reduced tariffs would not only allow the availability of cheap raw materials and intermediate but would also be a key factor in reducing the imported inflation, especially for food products.

Copyright Business Recorder, 2025

The report further underscores broader structural issues that have long plagued Pakistan’s fiscal landscape: a narrow and inequitable tax base, a burdensome, complicated compliance regime and a vast informal economy that remains outside the tax ambit.

These systemic shortcomings have meant that despite nominal gains, revenue collection has seen little growth in real terms over the past decade. The tax-to-GDP ratio continues to lag well behind other regional economies, falling short of the 10.6 percent target for FY2024-25.

Research also shows that the tax bureaucracy’s disproportionate focus on identifying non-filers of tax returns and expanding the number of registered filers has produced limited dividends.

While formal registrations have increased on paper since 2014, they have not been matched by a commensurate rise in actual revenue, as many filers declare negligible or no taxable income, resulting in little meaningful addition to overall revenue and clearly indicating that too many registrants continue to under-report or evade their obligations.

In fact, non-compliance within the registered segment has become as serious a challenge as the vast informal economy outside the tax net, underscoring that simply expanding the roster of filers without addressing under-reporting and enforcement gaps will do little to strengthen the country’s fiscal capacity.

Beyond weakening compliance among existing taxpayers, the structural inefficiencies plaguing the tax system have also incentivised businesses to remain informal.

A key driver of widespread tax evasion and the reluctance of many enterprises to formalise is the prohibitively high cost of compliance to the tax regime. In recent years, not only have tax rates surged steeply, but the procedural burdens, regulatory uncertainty and the overall convoluted nature of the tax structure — dominated by indirect taxes, a tortuous withholding tax regime where multiple tax rates apply at different stages of business transactions, and minimum taxation on turnover regardless of profitability — have collectively deterred participation in the formal economy.

An apt example of how the above factors combine to discourage businesses from entering the formal sector, and even jeopardise the viability of those part of the tax net is the recent hike in the general withholding tax rate for services rendered from 11 percent to a hefty 15 percent of turnover in the latest budget.

Such taxation on gross turnover, especially when applied at high rates, is particularly punitive for businesses with slim profit margins. Because it applies regardless of actual earnings, it places an outsized burden on smaller firms and new entrants, many of which lack the financial resilience to absorb such costs.

The resulting pressure on cash flows and profitability can undermine business sustainability, driving some to exit the formal sector, or cease operations altogether.

It is essential, then, that policies targeting informality and compliance with the tax regime are carefully crafted. As the ADB report notes, steep hikes in tax rates can push formal businesses underground, while lowering rates alone may achieve little without effective enforcement measures, administrative reform of the tax bureaucracy and a broader tax base.

Adjustments to tax rates must be accompanied by simplified compliance procedures, targeted enforcement strategies and meaningful support for businesses transitioning into the formal sector.

The FBR must also move beyond the flawed notion that more filers automatically mean more revenue. Its habitual reliance on elevated tax rates and aggressive enforcement measures has done little to address underlying inefficiencies. Only a shift towards meaningful structural reform of the taxation framework will deliver lasting results.

Copyright Business Recorder, 2025

This was stated by Acting President of Faisalabad Chamber of Commerce and Industry Qaiser Shams Gucha while addressing at a press conference after a joint meeting of business organisations recently.

He said that Karachi, Lahore and Sialkot chambers have decided to go on strike on July 19 against 5 important provisions. We are against the provisions of A-37 and B-37 giving powers of arrest to the FBR and other serious punishments for the unity of the business community, but the final decision on the strike will be taken in consultation with local business organisations. He said that there is no discrimination between industrialists and traders as the new law will be equally applicable to the entire business community.

He said that Karachi, Lahore and Sialkot Chambers have mentioned only five very serious provisions while dangerous provisions for arrest of owners are also being included in the proposed provincial labor laws and they will also demand their return among their demands during the protest. He said that the business community’s reaction against the budget has reached the government and it is expected that the government will reconsider the demands of the business community, due to which there will be no need for a strike on July 19.

They said that if their legitimate demands are not accepted, there will be a full-scale protest, the center of which will be the Ghanta Ghar Chowk in Faisalabad. Where there will be a joint protest by all organisations.

They further said that we are with all the chambers of Pakistan and if the government does not accept our demands, we will go on a full-scale strike. However, he urged the government to immediately acknowledge the legitimate demands of the traders and industrialists so that the economy can continue to improve. He thanked the journalists for their cooperation and said that he would play his full role in conveying the legitimate demands of the business community to the higher authorities. Finally, Vice President Shahid Mumtaz Bajwa thanked the journalists.

Copyright Business Recorder, 2025

The FBR chairman informed Senate Standing Committee on Finance that, “I assure the committee that there is no political victimisation and we have never received any order from high ups on such kinds of actions. The politician interference has been totally stopped in the FBR.”

He said that the FBR has already warned tax officials of immediate suspension, in case, they try to exert pressure for seeking choice postings in field formations.

Arrest for tax fraud: Senate panel for defining a threshold

In this regard, the FBR chairman has issued a letter to all the departments with regard to use of extraneous influence by officers/ officials of the FBR in administrative matters.

The Senate Standing Committee on Finance and Revenue, chaired by Senator Saleem Mandviwalla, received a comprehensive briefing on the updated status of its budget recommendations made during the Budget 2025-26 deliberations.

Highlighting alleged harassment of senators by FBR officials, Senator Afnanullah Khan stated that a notice had been issued to an IT company registered under his name. He underlined that FBR demanded income tax on a project which was not completed due to COVID. The FBR chairman assured the committee of prompt resolution, stating that the matter would be thoroughly examined without delay.

Senator Afnanullah Khan accused that a tax official (Additional Commissioner Ali Jafar) of the Corporate Tax Office Islamabad has made a wrong case against his IT company, he alleged before the committee.

The FBR chairman responded that if tax official is found guilty, he would be punished and prosecuted.

Senator Mohsin Aziz said that it is a fact many cases are re-opened against the taxpayers.

Responding to this, the FBR chairman said that, “I have conveyed to the entire tax machinery that it is their work to collect only due tax from taxpayers. Tax officials are not assigned to collect more taxes, but only due and correct amount of taxes from the taxpayers.”

Discussing the recent status of barter trade between Pakistan and Iran, officials stated that the Commerce Ministry has initiated barter trade on the basis of mutual understanding between the parties, and the arrangements will be finalised after the approval of FBR and the State Bank of Pakistan (SBP).

Copyright Business Recorder, 2025

Minister for Finance Aurangzeb held a meeting Wednesday with a delegation of the PBC, led by its outgoing CEO Ehsan Malik and the incoming CEO Javed Kureishi, at the Finance Division.

The Minister welcomed the transition in leadership at the PBC and extended his full support to the incoming team, reaffirming the government’s commitment to maintaining an inclusive and ongoing consultative process with key stakeholders in the business community.

Aurangzeb informs PBC: Tax policy unit to be relocated to MoF

During the meeting, the Finance Minister appreciated the constructive role played by the PBC, particularly acknowledging the value of its policy input, research, and the extensive sectoral data regularly shared with the government. He underscored the importance of evidence-based policymaking and informed the delegation that the Tax Policy Office had been relocated from the Federal Board of Revenue (FBR) to the Finance Division, with a view to institutionalizing tax policy formulation and strengthening engagement with forums such as the PBC.

Senator Aurangzeb emphasized that the government places high value on the perspectives and feedback of the business and industrial community, and in keeping with this approach, the consultative process for the federal budget 2025–26 was initiated earlier than usual this year. This step was taken to allow greater time for dialogue, reflection, and integration of a wide range of recommendations received from chambers, trade bodies, and business forums into the budget-making process, he added.

Copyright Business Recorder, 2025

The State Bank of Pakistan (SBP) on Tuesday released the borrowing data for a period of July 1, 2024 to June 27, 2025, which revealed that the federal government borrowing for budgetary support (from SBP and scheduled banks) decreased to Rs 5.554 trillion during the FY25 compared to Rs 7.89 trillion during the same period last year (FY24), showing a notable decline of Rs 2.336 trillion.

The bulk of government borrowing came from scheduled banks, as the IMF has imposed some restrictions on borrowing from the SBP. During the same period, the federal government borrowed Rs 276.5 billion from the state bank, compared to a net retirement of Rs 608.3 billion in the previous year.

Domestic banking sector: Pakistan govt sets Rs5.75trn borrowing target for Q1

On the other hand, government borrowing for budgetary support from scheduled banks recorded a substantial decline of 38 percent or Rs 3.22 trillion during the period July1, 2024 to June 27, 2025. With fresh loans from the scheduled banks, overall, the federal government borrowing decreased to Rs 5.277 trillion in FY25, significantly less than Rs 8.498 trillion in FY24.

Economists said that less-than-targeted revenue collection and slow foreign inflows have compelled the federal government to rely on the domestic banking system to finance the fiscal deficit. However, on a positive note, borrowing has sharply declined, mainly due to record Rs 3.4 trillion SBP’s profits, which was transferred to the government’s account. SBP’s profit also enabled the federal government to conduct the first-ever buyback auction of the government securities.

In a bold and unprecedented step toward fiscal responsibility, the Ministry of Finance has successfully made early retirement of Rs 1.5 trillion in public debt during FY25. The ministry recently retired Rs 500 billion in debt owed to the State Bank a full four years ahead of its scheduled maturity in 2029. Previously, the government successfully bought back Rs 1 trillion in market debt completed by December 2024. This substantial early repayment has also contributed to a notable improvement in Pakistan’s fiscal indicators, bringing the debt-to-GDP ratio down from 75 percent in FY23 to 69 percent in FY25.

Compared to the federal government, provincial governments overall repaid Rs 532 billion to SBP and scheduled banks between July 1, 2024 to June 27, 2025 as against Rs 387.5 billion were repaid during the same period last fiscal year.

According to official statistics, during the review period, collectively provinces repaid Rs 170 billion of budgetary borrowing to the SBP. Among individual provinces, Balochistan repaid Rs 8.2 billion to the SBP, Sindh Rs 145 billion, and Punjab Rs 28.5 billion during the last fiscal year. However, Khyber Pakhtunkhwa borrowed Rs 12 billion from the SBP to meet its financial needs.

Additionally, the Azad Jammu and Kashmir (AJK) government retired Rs 15 billion, while the Gilgit-Baltistan government repaid Rs 7 billion during the same period.

Copyright Business Recorder, 2025

The government has been forced to repeatedly seek bailouts from the International Monetary Fund (IMF) due to the crippling constraints imposed by this debt load. This pattern has become all too familiar, as Pakistan has participated in 24 IMF programmes since 1958.

Pakistan’s dependence on the IMF has reached a critical juncture. The prevailing $3 billion Standby Arrangement (SBA), which was approved in 2023, carries tough stipulations that are significantly affecting the structure of Budget 2025–2026.

These requirements include tax reforms, austerity measures, and the privatization of state-owned businesses. It turns out that Pakistan’s debt crisis has so severely undermined its economic sovereignty that its national budget needs what amounts to external authorization, raising serious concerns about the country’s ability to steer its economy.

Decades of fiscal mismanagement, lax tax administration, and an unsustainable spending pattern have been the main causes of Pakistan’s current predicament. The low tax-to-GDP ratio of 11 percent is due to both political resistance to taxing wealthy elites, especially those in the real estate and agricultural industries, and policy shortcomings. Meanwhile, 48% of federal revenues are currently used for debt servicing, leaving a small amount for social services or pertinent development expenditures.

The circular debt in the energy sector, which has grown to PKR 5.4 trillion, is a prime example of the structural weaknesses in the economy, which include a mix of poor governance, pricing distortions, and long-standing inefficiencies that have been ignored by succeeding administrations.

External shocks, such as the uncertainty surrounding US tariff policy and regional geopolitical tensions, have exacerbated these structural issues. As a result, Pakistan’s economy is caught in a vicious cycle: high debt necessitates IMF support, which imposes austerity that constrains growth, which in turn makes debt repayment more difficult.

However, the IMF-mandated austerity alone will not resolve Pakistan’s challenges. Initiatives like URAAN Pakistan and the government’s 5Es Framework (Exports, E-Pakistan, Environment, Energy, and Equity) are necessary to address the fundamental root causes of Pakistan’s economic vulnerabilities. The framework aims to increase foreign exchange earnings and cut reliance on external debt by giving exports priority.

Through extensive ICT integration, E-Pakistan hopes to bring about a digital transformation that promotes creativity, effectiveness, and accessibility. In order to maintain long-term ecological and economic stability, the environment component places an enormous value on climate resilience and sustainable resource use. A focus on energy seeks to guarantee clean, affordable, and dependable power to support social and industrial advancement.

Last but not least, equity aims to build inclusive human capital through equal opportunity and high-quality education, establishing the groundwork for a society that is just and knowledge-based. When taken together, these pillars show the way to a Pakistan that is advanced, resilient, and forward-thinking. In order to end Pakistan’s economic stagnation cycle to establish a more just and productive economy, these reforms are crucial.

Pakistan must acknowledge that external imposition alone is insufficient to address these structural problems as it negotiates its financial future with the IMF. Domestic political will and societal agreement on economic reforms are essential for real change.

To mitigate the effects of reforms on the impoverished, the upcoming budget offers a chance to start this challenging transition by preserving and even growing social safety nets like the Benazir Income Support Programme (20% increase compared to the previous fiscal year).

Instead of continuing the consumption-driven model of the past, it should place a higher priority on investments in human capital and export-oriented industries that can produce sustainable growth. Additionally, it must commit to multi-year reform programmes with transparent accountability and benchmarks, signaling a real break from the cycle of crisis and stopgap measures.

Hardly could the stakes be higher. Without significant structural changes, Pakistan runs the risk of being stuck in a crippling cycle of debt and dependency for good, losing control over its economic future. The alternative—a persistent dedication to modernization, sound governance, and fair growth—offers the possibility of both macroeconomic stability and true prosperity. Initiatives such as URAAN show that there are answers; the political will to put them into practice on a large scale has been lacking.

Given the nation’s current economic juncture, Budget 2025–26 should be more than just another crisis management exercise; rather, it should signal the start of Pakistan’s massive economic revolution.

Copyright Business Recorder, 2025

The notification issued by the division stated that the federal cabinet in its decision dated 10.06.2025 has approved continuation of following austerity measures for fiscal year 2025-26 as already notified by; (i) finance division during fiscal year 2024-25, dated 04.09.2024 in pursuance of Cabinet decision dated 27.08.2024; (ii) Cabinet Division vide OM No 7-1/2023-Min-I dated 28.02.2023 in pursuance of Cabinet decision dated 22.02.2023; and (iii) Cabinet Division vide OM No 9-148/2002-Min-II dated 28.02.2023 in pursuance of Cabinet decision dated 22.02.2023.

Budget 2025–26: Austerity or stimulus?

The notification stated that the Cabinet further approved that:(1) the following austerity measures shall also be applicable mutatis mutandis during fiscal year 2025-26 in the case of all federal government attached departments, state-owned enterprises and statutory bodies etc including regulatory authorities: (a) approved by the Cabinet on 22.02.2023 and notified by the Cabinet Division vide OM No 9-148/2002-Min-II dated 28.02.2023; and (b) approved by the Cabinet on 27.08.2024 and notified by the Finance Division dated 04.09.2024.

In the case of state owned enterprises, these austerity measures shall be considered a direction of federal government under Section 35 of the State-Owned Enterprises (Governance & Operations) Act, 2023 and under the relevant sections of their respective organic laws in the case of statutory bodies.

The Finance Division’s notification issued on September 4, 2024 stated that in pursuance of the Cabinet’s decision for case No 232/28/2024 dated 27.8.2024, the following austerity measures are notified till further orders:-

(i) There shall be a complete ban on the following expenditures with respect to the current budget. (a) Purchase of all types of vehicles with the exception of operational vehicles such as ambulances and other medically equipped vehicles, fire fighting vehicles, buses and vans for educational institutions, solid waste vehicles and motorbikes; (b) Procurement of machinery/equipments with the exception of those required for hospitals/laboratories/agriculture/mining/schools; (c) creation of new posts including contingent paid/temporary posts; (d) Continuation of contingent paid/temporary posts beyond one year; (e) Treatment abroad at government expense; and (f) All non-obligatory visits abroad where government of Pakistan funding is involved.

(ii) The Austerity Measures notified by the Cabinet Division vide OM Nos 7-1/2023- Min-I and No 9-148/2002-Min-II dated 28.2.2023 will remain applicable unless modified or withdrawn by the Federal Cabinet.

(iii) All posts lying vacant for last three years shall be abolished. Purchase of durables and creation of posts under PSDP funded projects shall be exempted from the application of this ban.

Copyright Business Recorder, 2025

He informed that the sentiment of the business community is unanimously against the newly introduced provisions of 37A and 37AA of the Sales Tax Act 1990 – stating that the honourable taxpayers of Pakistan are not criminals and shouldn’t be treated that way. It seems that FBR has failed to achieve the tax collection target; and, the taxation matters are now seem to be resolved by arresting the already registered and law-abiding taxpayers and to put them behind the bars unfairly, he added.

Federal budget conference held to highlight technical issues in the federal budget 2025 – 26; along with recommendations and pragmatic solutions for their swift redresses. The conference was attended by multi-sectoral trade bodies, associations and chambers from across Pakistan physically and online in a large number. Notably, there was also senior representation from FBR and PRAL.

Asif Sakhi, VP FPCCI, reiterated that trade and industry is ready to cooperate with the government in its efforts to collect taxes in an honourable manner; but, not at the cost of self-esteem and dignity of the taxpayers.

Nasir Khan, VP FPCCI, highlighted that, in the present scenario, the country seems to be rudderless in its economic policymaking; and, this lack of effective governance may lead to unrest – and, we, as businessmen, are presently left with no option than to shut down our factories to avert losses, he added.

Haji Muhammad Afzal, senior member FPCCI, added that FBR failed to check the unregistered sales and such businesses shouldn’t be allowed to operate who represent unregistered persons or entities.

Umar Rehan, Chairman of Pakistan Vanaspati Manufacturers Association (PVMA), said that aforesaid provisions contained in the budget may result in closure of multiple industrial sectors. We are with the government for its commitment to digitalization; but, in presence of the current budgetary provisions, it is impossible to cooperate with the FBR. We cannot cut invoices in cash amounting more the 2 lacs under the prevailing circumstances; where, cash is not considered a banking instrument.

Towel Manufacturers Association maintained that our businesses are going through losses at the moment; and, we are being labelled by the government as thieves.

Our neighbouring countries are taking advantage of the current situation and taking away our export customers. The business environment has now reached a point that international buyers are asking whether we are shifting our businesses to Dubai or somewhere else.

Representatives from LNG Association expressed their concerns regarding provisions of SRO 709(I)/2025 of Sales Tax; and, shared that the setup required to make e-invoicing facility available has high installation charges for which the sector is not ready.

It is further revealed during the discussion that a lockup sort of setup is being built in the relevant RTOs and that is causing harassment in the business community.

Representatives from Pakistan Security Agencies Association said that they tried to contact PRAL authorities several times; but, they don’t know how to proceed further in respect of procedure to integrate the system of taxpayers to the PRAL setup – and, informed that FBR portals are not ready to cater to the provisions.

Zubair Bilal, Chief Commissioner, IR, Large Taxpayers Office (LTO) Karachi, assured FPCCI of his diligent consideration of the technical points raised collectively from the apex platform of FPCCI and agreed on a continued, inclusive and result-oriented consultative process with the business community.

Copyright Business Recorder, 2025

The ministry issued an office memorandum which stated that the President has been pleased to sanction with effect from 01.07.2025 and till further orders, an Ad hoc Relief Allowance-2025 @ 10 per cent of running basic pay to Armed Forces Personnel, Civil Armed Forces and to all the Civil Employees of Federal Government as well as the civilians paid from Defence Estimates and contract employees employed against civil posts in basic pay scales on standard terms and conditions of contract appointment.

The amount of Ad-hoc Relief Allowance-2025: i. will be subject to Income Tax; ii. Will be admissible during leave and entire period of LPR except during extra ordinary leave; iii. Will not be treated as part of emoluments for the purpose of calculation of pension/gratuity and recovery of house rent; iv. Will not be admissible to the employees during the tenure of their posting/deputation abroad; and v. Will be admissible to the employees on their repatriation from posting/deputation abroad at the rate and amount which would have been admissible to them had they not been posted abroad.

Employees demand reasonable salary increase

The term “basic pay” for the purpose of Ad-hoc Relief Allowance-2025 will also include the amount of the personal pay granted on account of annual increment (s) beyond the maximum of the existing pay scales.

The above Ad-hoc Relief Allowance-2025 shall be accommodated from within the budgetary allocation for the year 2025-26 by the respective ministries/divisions/departments and no supplementary grants shall be allowed on this account.

Another office memorandum issued by the Finance Ministry stated that the President has been pleased to sanction with effect from 01 .07.2025 grant of Disparity Reduction Allowance (DRA) @ 30 per cent of basic pay as on 30.6.2022 to the officers/officials in BPS-1 to 22 who are already drawing DRA on the same terms and conditions provided under Finance Division’s O.tM No. F.No. 14(1)R-312021-69, dated 23.02.2022and OM No FNo 14(1)R3l2o21dated 19th July 2022. For those employees who have been appointed on or after 1-7-2022, this allowance will be admissible on the basis on relevant initial basic pay scale of 2017.

Copyright Business Recorder, 2025

The committee met under the chairmanship of Syed Tariq Hussain, which considered agenda item regarding the point of order raised by Asad Qaiser, MNA and former Speaker of the National Assembly, concerning the challenges faced by tobacco growers and the need for a comprehensive policy to address their concerns.

It was informed that tobacco is a significant cash crop in Pakistan, cultivated over approximately 55,000 hectares with an annual production of 186,000 tons. Of this, KPK contributes significantly, with 32,936 hectares under cultivation and annual production of around 97,385 tons making it the primary contributor to Pakistan’s exportable tobacco. Despite its importance, tobacco growers face financial hardship.

The crop spans eight months, and the cost of cultivation on one hectare reaches approximately Rs1.9 million, while farmers report an average monthly profit of only Rs3,700. Contributing factors include delays in announcing the indicative price, lack of government procurement, poor performance of the Pakistan Tobacco Board (PTB), insufficient federal oversight, lack of research and development, and failure by the Ministry of National Food Security and Research to appoint or nominate PTB members.

The Pakistan Tobacco Board informed the committee that it had conducted meetings with stakeholders and that tobacco is currently being purchased using a weighted average method. The board also claimed to address concerns regarding pricing, rejections, and related matters. However, the committee expressed concern over the PTB’s lack of performance and coordination with growers.

The committee issued several directives to ensure comprehensive follow-up. The Pakistan Tobacco Board, the Ministry of National Food Security and Research, the KPK Agriculture Department, and the Federal Board of Revenue (FBR) were instructed to present detailed information in the next meeting, including the current tobacco taxation policy, CESS collected over the last 10 years, utilisation details of collected CESS and the policy framework under which it was used, CSR activities undertaken, and the breakdown of CESS collected by the federal government and shared with provinces, including under which budgetary heads.

The committee directed the secretary of the Ministry of National Food Security and Research to constitute the Pakistan Tobacco Board within one month and submit a report to the committee.

Additionally, the secretary was instructed to convene an emergency meeting of the board to address the outstanding issues faced by tobacco growers and to provide a follow-up report within one week. The Federal Board of Revenue (FBR) is to be invited to the next meeting to present details specifically related to CESS collection.

The Pakistan Agricultural Research Council (PARC) was also assigned the task of outlining its support initiatives for tobacco growers and presenting a proposal for establishing a research centre aimed at improving the quality and productivity of tobacco crops.

The committee directed the Pakistan Tobacco Board, along with the relevant provincial and federal government authorities and representatives of tobacco growers, to hold a joint consultation and submit a comprehensive report addressing all unresolved issues prior to the next meeting.

To further facilitate discussions on this matter, the committee granted Shehram Khan Tarakai, MNA, the status of Special Invitee for all future proceedings related to tobacco issues.

The committee raised concern with the ministry over the exclusion of several schemes previously discussed and recommended by the committee, in particular the proposed Dates Research Centre at Khairpur, to be established in collaboration with Shah Abdul Latif University.

In response, the secretary explained that the ministry’s development budget had been significantly reduced from Rs24 billion to Rs14 billion, then to Rs7 billion, and finally to Rs4.7 billion due to fiscal constraints imposed by the federal government under its obligations to the IMF, leading to the curtailment of various planned projects.

The committee reiterated its directive to the Pakistan Agricultural Research Council (PARC) to visit Khairpur along with the concerned Member and to submit a feasibility report before the Committee, so the project may be pursued through re-appropriation of funds.

In relation to Agenda Item No 4, the Pro Vice-Chancellor of Muhammad Nawaz Sharif University of Agriculture, Multan briefed the committee on the university’s ongoing and planned research initiatives, their impact on national food security, collaborations at both national and international levels, and the utilisation of research funds.

Key innovations highlighted included the development of hybrid wheat varieties that can increase crop yield by up to 20 per cent, and self-irrigating wheat with modified leaf angles to channel water directly to the roots while minimising evaporation.

Additionally, they are working on drillers expected to be commercialised within the next three years, aimed at increasing wheat productivity to 80–100 maunds per acre. Other areas of research include pulse production, digital marketing platforms for post-harvest handling and market access, fruit value addition, soil-less vegetable farming, salinity adaptation in the Southern Indus Basin, cotton and vegetable seed research, and the establishment of a National Crop Genomics and Speed Breeding Centre.

The committee appreciated the university’s efforts and emphasised the importance of making research outcomes accessible to farmers. It stressed that practical application of these innovations is critical to enhancing agricultural productivity and ensuring national food security.

Furthermore, the committee urged the ministry to present a comprehensive 20-year agricultural development plan. Despite the research and efforts underway, major crop production has declined by 17 per cent, highlighting the urgent need for a long-term strategy that addresses the growing challenges of pollution, climate change, and sustainability in the agriculture sector.

Copyright Business Recorder, 2025

On the directions of Dr Muhammad Ali, it has been recommended to increase scholarships and subsidies to reduce the financial burden of students and their parents.

On the instructions of Dr Muhammad Ali, the university has increased the amount of scholarship from Rs380 million to Rs406 million compared to the previous year. In addition, scholarships will also be given to students of the university under the Honhaar Scholarship Programme, HEC and Punjab Education Endowment Fund.

Due to the initiatives of Dr Muhammad Ali, the budget deficit of Punjab University has decreased for the first time. This year, the budget deficit is Rs1.2 billion compared to Rs2 billion last year.

On this occasion, the syndicate members appreciated the austerity policy of the Punjab University administration. On the instructions of Dr Muhammad Ali, approval was given to increase the research grant from Rs229 million to Rs297 million to further improve the international ranking of the university and promote the research culture that has a positive impact on the country’s economic and social development.

Speaking on the occasion, Dr Muhammad Ali said that the university’s budget deficit will be eliminated in the next 3 years. He said that the university will prioritize increasing sources of income instead of borrowing. He said that the university’s endowment fund will be strengthened. For the first time, the university will receive a grant of Rs780 million from the Punjab government.

According to other salient features of the budget, special students will be provided free education and free accommodation, while students who take admission on the basis of sports will be provided free education and tuition fees for Hafiz Quran will be waived.

The Punjab University administration will provide a subsidy of crores of rupees to students residing in the hostel, transport while the subsidy provided towards electricity bills in teaching departments is in addition to this.

Copyright Business Recorder, 2025

The country’s new economic momentum structured around reform-driven governance, investor-centric policy frameworks, and an assertive geopolitical posture is beginning to spark a rare confluence of confidence and credibility. At the heart of this strategic recalibration lies the Special Investment Facilitation Council (SIFC), a state-level institutional mechanism that is now proving to be far more than a bureaucratic symbol.

The government’s ambition to attract US$ 5 billion in foreign direct investment (FDI) is not just rhetorical it is now backed by tangible indicators, from soaring remittances and bullish capital markets to an unprecedented Rs 4.2 trillion development outlay for FY2025–26.

Unlike previous economic plans that often stumbled at the altar of execution, this one appears both technically sound and politically backed, signalling a determined move from stagnation to structured growth.

The post-budget environment in Pakistan tells a compelling story of market revival and strategic foresight. The KSE-100 index, long seen as a bellwether of investor sentiment, soared past the 125,000 mark a record high that is not merely symbolic but reflects deep-rooted optimism in the financial ecosystem. It is no coincidence that this surge was led by foreign investors, underlining Pakistan’s emerging credibility in global markets.

The budget has been well received across sectors, with economists and market strategists identifying key policy anchors that aim to shift the economy from short-term consumption patterns to sustainable, production-led growth.

The IMF’s endorsement of recent reforms further consolidates Pakistan’s reformist narrative, while the active dismantling of red tape through SIFC’s oversight is removing historical bottlenecks that once stifled both local and foreign investment. In this new configuration, SIFC has become the cornerstone of investment confidence not only fast-tracking approvals but also improving inter-agency coordination, a chronic structural weakness in the past.

This forward-looking investment strategy is not confined to rhetoric or theoretical frameworks. It is underwritten by the Rs 4.2 trillion development envelope, of which Rs 1.4 trillion is allocated to the Public Sector Development Programme (PSDP), while Rs 2.8 trillion will be channelled through non-PSDP instruments like public-private partnerships and foreign-funded initiatives.

Balochistan, often pushed to the economic periphery despite its geostrategic significance, is now taking centre stage in this paradigm. Federal Planning Minister Ahsan Iqbal’s assertion that “no region will be left behind” is not just political grandstanding but is backed by project-specific commitments in water management, solarisation of remote districts, higher education, and accelerated execution of the second phase of the China-Pakistan Economic Corridor (CPEC) in Gwadar and Makran. This includes the creation of a new Climate Change Fund by the provincial government a significant move that aligns regional sustainability priorities with the federal development matrix. For the first time in decades, Balochistan is no longer merely a line item but a strategic axis in the national development strategy.

The broader narrative is equally encouraging. Pakistan’s manufacturing base once a victim of policy inertia and energy shortfalls is being recalibrated to support export-led growth, with the textile, food processing, and IT sectors receiving focused policy attention.

Finance Minister Muhammad Aurangzeb’s unveiling of a Rs 50 billion Industrial Revival Fund is a clear message that the government intends to walk the talk. Special tax incentives, capital repatriation ease, and a renewed focus on digital exports are now forming the architecture of a 21st-century industrial strategy. With IT exports projected to cross $3 billion this fiscal year, there is a credible roadmap in place.

More importantly, these initiatives are being undertaken with a view to restructuring Pakistan’s growth model from a reliance on consumption and external debt to value-added exports and foreign investment inflows.

Analysts at Moody’s, Fitch, and JP Morgan forecast a 30–40 percent increase in FDI over the next year a projection contingent, of course, on continued fiscal discipline and uninterrupted policy continuity, both of which now seem more plausible given the institutional backing of the current economic plan.

While challenges such as inflationary pressures, external debt servicing, and uneven revenue generation persist, they are no longer defining the economic conversation. Instead, the narrative has decisively shifted towards opportunity, structure, and long-term resilience.

Pakistan appears to be in the early stages of what could be described as a strategic economic reset transitioning from a reactive, stabilisation-focused approach to one that is proactive, structured, and regional in outlook. The recent promotion of Chief of Army Staff Syed Asim Munir co-chair of the SIFC to Field Marshal adds another layer of strategic continuity to the reform process.

With military stability, political alignment, and institutional reforms now moving in tandem, Pakistan’s path forward looks less precarious and more purpose-driven.

The historic capital market rally, coupled with visible improvements in fiscal planning and provincial integration, suggests that Pakistan is not just scripting a new chapter it is attempting to rewrite the entire playbook of its economic future. If current trends sustain and policy discipline holds, the country may well be on the brink of its most transformative economic decade in recent memory.

Copyright Business Recorder, 2025

Following a meeting with key stakeholders on Tuesday, Minister for Planning, Development and Special Initiatives, Ahsan Iqbal, announced the initiative, emphasising the urgent need to address Pakistan’s rapidly rising diabetes rates.

The programme begins in the federal capital in its first year, expanding to the provinces from the second year onward. The goal is to reach approximately 33 million Pakistanis through screening, diagnosis, and treatment by leveraging primary healthcare facilities, lady health workers, and public awareness campaigns.

While this initiative is a crucial first step, it is a relatively modest effort, given the scale of the crisis. Pakistan is among the top three countries where diabetes is spreading at an alarming rate. Surveys estimate that 28–33 percent of the urban population is affected, while about 27 percent of cases go undiagnosed.

The proposed funding, which will be shared between the federal and provincial governments, covers only a fraction of what is truly needed to overhaul diabetes prevention, education, medication access, and long-term disease management.

Nonetheless, it is encouraging that the majority of the target population is included within the programme’s scope — an indication that the government recognises the seriousness of the issue. This approach is also in line with expert recommendations to integrate diabetes prevention into primary healthcare systems.

However, it’s important to address the root causes fuelling the surge in Type 2 diabetes: increasing consumption of ultra-processed foods, sugary beverages, and sedentary lifestyles. The result is a silent epidemic that leads to severe health complications such as heart disease, kidney failure, and other issues. These challenges require not only medical intervention but also effective preventive measures, including mass screening, public nutrition education, and tighter regulation of unhealthy food products — all of which should be central to the new government plan.

Unfortunately, the broader context is anything but reassuring. The recent 16 percent cut in the federal health development budget undermines the government’s capacity to complete essential infrastructure projects and build preventive healthcare systems.

While the US$ 6.8 million programme is commendable, its success depends on sustained investment, cross-sector collaboration, and systemic reforms. To effectively stem the tide of diabetes — as well as to fight serious communicable diseases such as hepatitis, polio, and tuberculosis — the federal and provincial governments need to scale up resources and ensure universal access to screening and affordable treatment.

Only through a comprehensive and well-resourced approach can this initiative become an important milestone in health equity for our people.

Copyright Business Recorder, 2025

According to industry stakeholders, logistic service is one of the key expenses the sector has seen increase in, due to 2% withholding tax and 2% sales tax on delivery of different items based on Cash on Delivery (COD).

Courier companies have begun deducting these taxes from online sellers, in compliance with new regulations approved in the federal budget as the Federal Board of Revenue (FBR) has designated courier companies as collection agents, given that they hold sellers’ invoices and act as intermediaries.

Is the budget changing how government views e-commerce?

As per the Finance Bill, these companies are now responsible for collecting and depositing the relevant taxes on behalf of e-commerce sellers.

Pakistan E-commerce Association (PEA) chairman Omer Mubeen warned that the new tax measures would shrink profit margins and put an additional burden on customers.

Online sellers slash their margins to offer discounts and free delivery to attract customers, now they have limited options to continue their businesses as compared to physical retail shops paying nothing in taxes.

While large e-commerce marketplaces may be able to absorb some of the increased costs internally, small and medium-sized (SME) sellers are expected to pass on the financial impact to consumers in order to stay afloat.

“The rising cost of taxes, coupled with increasing fuel prices and utility charges, particularly electricity, gas, and internet are further squeezing already narrow profit margins for online businesses in Pakistan,” he said.

Mubeen urged the government to provide a transition period for sellers to register with tax authorities and proposed that the 2% withholding tax should be waived for registered merchants. He also recommended introducing a nominal 0.25% income tax for compliant sellers to ease their financial burden and encourage documentation and digitisation.

Courier companies have also started advising e-commerce businesses and individual sellers to complete tax registration in order to continue availing delivery services. Without proper registration, courier companies and online marketplaces will not be authorised to process or ship such orders.

However, one-time sellers and women selling goods from their homes will be exempted from mandatory registration under the new e-commerce tax rules.

Usman Akhtar, a Lahore-based e-commerce entrepreneur, expressed concerns over the new taxes, stating that thousands of budding online sellers, many of whom are students or young professionals, have invested time and capital to build sustainable businesses. He described the new taxes as “discouraging” for emerging entrepreneurs.

“These young sellers are now forced to bear additional tax costs and navigate a complex registration process that may not be feasible for many,” he said.

Akhtar said while other countries incentivise e-commerce and digital sectors through tax holidays and support policies to foster entrepreneurship and employment, Pakistan’s short-term revenue-driven approach threatens long-term growth potential.

The government should analyse the market trends of e-commerce growth in Pakistan, independently and review its decision to end taxes on online business across the country at least for the next five years.

Taxing the digital frontier: Pakistan’s bold move to tap e-commerce and online revenues

Online sellers slash their margins to offer discounts and free delivery to attract customers, now they have limited options to continue their businesses as compared to physical retail shops paying nothing in taxes.

According to estimates, Pakistan’s e-commerce sector has grown over 35% annually in the past five years. Today, over 100,000 micro and small online sellers are active, supporting incomes for more than a million people nationwide.

The market share of e-commerce carried out on COD model stands over 90% in Pakistan. The country’s total market size is estimated at Rs2.2 trillion ($7.7 billion), which is under 2% of the national gross domestic product (GDP) and trailing behind regional peers.

First, with respect to the strengthened macroeconomic fundamentals the Update’s figures show that foreign exchange reserves with the State Bank of Pakistan on 20 June 2025 were 9.1 billion dollars — 6.9 billion dollars less than the rollovers that have been extended by the three friendly countries notably China, Saudi Arabia and the UAE; foreign investment declined from 1.58 billion dollars July-May 2024 to 1.35 billion dollars in the same period of 2024-25 with a decline in portfolio investment from negative 559.5 million dollars in 2024 to negative 624.4 million dollars in 2025 (ironically this decline of forewing portfolio investment had no impact on Pakistan Stock Market, which rose by 58.4 percent, which sceptics argue may be because the government remained reticent about taxing this sector); and consumer price index plummeted from 5.34 percent July-May 2024 to 2.29 percent in the comparable period of 2025 (though the poverty levels in the country rose to 44.2 percent as per the World Bank).

Second, prudent fiscal management is on the back of a massive rise in non-tax revenue from the rise in collections under petroleum levy (with the upper limit removed), an indirect tax whose incidence is on the poor more than on the rich.

Revenue from this source accounted for a whopping 21 percent rise in the revised estimates of 2023-24 from 2022-23 and in the current year’s budget the rise is projected at 26 percent more than last year – from 1161 billion rupees in the revised estimates of last year to 1468.39 billion rupees in 2025-26 with implications on the value of each rupee earned by the general public. For comparison it is relevant to note that the revenue from petroleum levy is 10 percent of FBR’s total projected tax collections for the current year.

And finally, external sector performance improved with a massive rise in remittances — from 27 billion dollars July-May 2023-24 to 34.89 billion dollars in 2024-25. Setting aside allegations of the State Bank of Pakistan purchasing dollars in the open market and crediting them under remittances, a charge levelled by some economists that were not refuted, the Independent Power Producers established under the China Pakistan Economic Corridor have sent numerous reminders to the government to clear their dues that have accumulated to 500 billion rupees (1.72 billion dollars).

Additionally, exports have improved by 4 percent July-May 2025 against the same period the year before; however, imports (raw materials and intermediate goods are required to propel growth) rose by 11.5 percent with the trade deficit rising to 24 billion dollars against nearly 20 billion dollars the year before. And the icing on the cake is the July-April 2025 negative 1.52 percent growth in large-scale manufacturing sector against positive 0.26 percent growth in the comparable period the year before.

The report further inexplicably maintains that the “ongoing International Monetary Fund programmes (Extended Fund Facility and Resilience and Sustainability Facility) along with upgraded credit ratings bolstered policy credibility and investor’s sentiment.” The credit rating by all three rating agencies, including the April upgrade, retain Pakistan at below investment grade and within the highly speculative indicative of material default risk with a limited margin of safety (largely defined as being on an IMF programme).

Furthermore, the claim that “the government remains committed to structural reforms, focused on tax harmonization, energy pricing, and privatisation…” is easily challenged as the reliance on indirect taxes is to the tune of nearly 80 percent of the total budgeted tax revenue — 60 percent from identified indirect taxes and 75 to 80 percent of direct taxes to be collected from withholding taxes levied in the sales tax mode, lower energy pricing is based on projected savings from renegotiated IPP contracts and borrowing over a trillion rupees from commercial banks at low rates (assumption that the discount rate will continue to fall), and privatisation is yet to kick off with the actual budgeted privatisation proceeds at only 87 billion rupees (around 300 million dollars).

The economy remains fragile and the general public is reeling under historically high poverty levels with resilience linked to continued assistance from multilaterals and friendly countries. It would have sent the right signal if expenditure had been slashed on all current expenditure items (which have all been raised) rather than through projecting a decline in the discount rate that would reduce the mark-up payable on past and lower budgeted loans in 2025-26 — a rate that can only be reduced with IMF staff concurrence who have repeatedly warned in their recent documents against reducing the rate without supporting data.

Copyright Business Recorder, 2025

The Finance Ministry communicated this clearly on financial position and commitments with the International Monetary Fund (IMF).

On June 27, 2025, the Ministry of National Food Security and Research (MNFS&R) sought emergency approval from the ECC Chairman and Finance Minister Senator Muhammad Aurangzeb to present a summary due to urgent market concerns. Approval was granted.

De-regulating the sugar industry: do not drop the ball again

The MNFS&R briefed the ECC that a meeting of the Prime Minister’s Committee, formed on March 16, 2025 under the Deputy Prime Minister, was held on June 19. The committee noted that sugar prices remain high, and current stock levels are inadequate to stabilize the market.

The committee concluded that demand-pull inflation in the sugar market could only be mitigated by increasing supply. Despite multiple appeals, the sugar industry has refused to reduce ex-mill prices to the agreed range of Rs.154–159/kg. As a result, the committee recommended importing up to 500,000 metric tons (0.500 MMT) of white sugar.

A subsequent Sugar Advisory Board (SAB) meeting on June 23 reviewed stock levels, reported at 2.575 MMT, and evaluated consumption trends. The average monthly consumption, net of exports since the start of the crushing season (November 21, 2024), is 0.541 MMT — a level that may only just meet domestic demand through the next season, leaving no surplus stock for FY 2025-26.

Consultations with sugar dealers and federal and provincial agencies reveal tight supply and rising demand, enabling hoarding and profiteering. Projections suggest sugar prices could climb to Rs.190/kg ex-mill and Rs.200/kg at retail by November 2025.

To curb the ongoing price surge, the MNFS&R proposed importing white sugar and requested the federal government provide duty and tax relief on imports until September 30, 2025.

A Steering Committee was proposed to manage import logistics, price setting, and distribution, including Federal Minister for MNFSR (Chairman), Federal Minister for Commerce, Special Assistant to the Prime Minister (Foreign Affairs), Secretaries of Finance, Commerce, MNFSR, and Industries, the FBR Chairman, Chief Secretaries of all provinces and Chairman of the Trading Corporation of Pakistan (TCP).

The committee will determine the import quantity and procurement methods, including government-to-government (G2G) deals, private importers, or via the TCP.

The TCP has provided cost estimates both inclusive and exclusive of duties/taxes for an import volume of 100,000 MT (+/- 5%).

Following the presentation, MNFSR formally requested the ECC’s approval for importing up to 0.500 MMT of white sugar through this mechanism.

However, the Finance Division emphasized that no subsidy is allocated for sugar imports in the FY 2025-26 budget and IMF conditions prevent any waiver of duties or taxes. The ECC reiterated its earlier directive to deregulate sugar prices, noting that any import proposal must include detailed financial implications for ECC approval.

After a thorough discussion, the ECC approved the formation of the Steering Committee, which will submit detailed recommendations and financial evaluations for final decision-making.

Copyright Business Recorder, 2025

According to official sources, the president signed the bill after it was approved by the National Assembly through a majority vote on Friday. This approval grants the federal government the legal mandate to implement its planned revenue measures and expenditures for the upcoming financial year.

The new budget will come into effect at midnight, bringing into force a series of new tax measures and financial reforms detailed in the finance bill.

These changes aim to support the government’s economic priorities and fiscal objectives for 2025-26.

President Zardari’s signature marks the final legislative step, enabling the government to proceed with its economic agenda and manage national finances according to the newly outlined framework.

With this process now complete, the government is positioned to roll out its budgetary initiatives, including measures intended to boost revenue collection and address fiscal challenges.

The approval also reflects the culmination of parliamentary debate and review, setting the stage for the practical implementation of economic plans in the coming months.

Copyright Business Recorder, 2025

From July 1, 2025, the FBR has also reduced Regulatory Duty (RD) on the import of 1,022 items. In this regard, the FBR has issued two notifications here on Tuesday to implement customs tariff reductions.

According to the officials, the overall goals of the National Tariff Policy 2025-2030, formulated by the Ministry of Commerce, are elimination of ACD in 04 years, elimination of RD in 05 years, complete phasing out of Customs duties exemptions under 5th schedule in 05 years, reduction of Customs Duty slabs from existing 5 slabs to 4 Slabs of 0%, 5%, 10% and 15%.

National Tariff Policy: govt approves phased elimination of import duties

The Budgetary changes in Additional Customs Duty (ACD) and Regulatory Duty (RD) introduced in the Federal Budget 2025-26 are closely aligned with the National Tariff Policy. These reforms aim at achieving simplified duty structure, reduction in costs of production for industry, and promote trade facilitation.

By lowering ACD and RD rates on a broad range of goods – particularly raw materials and intermediate inputs – the policy seeks to ensure a more predictable and transparent tariff regime that supports industrial growth and encourages export-led growth.

Recalibration of Additional Customs Duty (ACD) has been introduced through SRO 1151(I)/2025, replacing the earlier SRO 929(I)/2024. ACD has been removed entirely for goods falling under the 0%, 5%, and 10% CD slabs – except for some tariff lines which will continue to be charged ACD at 2%. For goods under the 15% slab, ACD has been reduced from 4% to 2%. For goods under the 20% slab see a reduction from 6% to 4%, 2% or 0%.

For slabs above 20%, the ACD is lowered from 7% to 6%. These changes aim to bring parity in effective protection levels and lower the cost of doing business, especially for intermediate and capital goods essential to export-oriented and import-substitution industries. Under Regulatory Duty (RD) reforms notified vide SRO 1152(I)/2025 RD has been reduced on 1,022 PCT codes. This includes substantial reduction of 50% and 20% on around 1000 PCT codes.

The maximum RD rate has been cut significantly from 90% to 50%, aligning with international trade norms and reducing excessive protection. The regulatory duties have not been completely removed for locally produced goods to provide protection to local industries. On more than 900 PCT codes of mainly consumer goods, RD has been retained at prior rates, officials added.

Copyright Business Recorder, 2025

Despite the prolonged anti-IDC campaign and dialogue by business leaders with relevant authorities, even reservations conveyed in upper house of the parliament, the Government of Khyber Pakhtunkhwa enforced 2 percent export tax under Infrastructure Development Act from July 01, next and make it part of the finance bill and budget documents 2025-26.

It is noted to mention here that the provincial government has imposed 2 percent export tax through Infrastructure Development Act 2022, which is continuously implemented by making it part of Finance Bill/budget documents of every fiscal year. On the other hand, the Business community vigorously campaigned against IDC and proactively took up this issue with authorities and every forum at central and provincial level.

Export process has already been slowed down from Khyber Pakhtunkhwa as business community/ exporters preferred to shift their consignments to Islamabad and other provinces to prevent huge financial losses, in wake of enforcement of 2 percent IDC on export, reports say.

The Federating Units (provinces) are competent to levy cess on goods/services produced, brought into or taken out of the province. Provincial governments have already levied IDC on imports and are collecting the same through Customs computerised system for the past over one decade, experts say. They added the provinces under the Constitution appear to have power to levy an IDC on transportation, carriage or movement of goods for imports to or exports from the province. However, they stated in order to encourage exporters and to increase exports, duties/taxes are usually not levied on exports as it might have an adverse effect on exports and the flow of foreign exchange into the country.

Traders categorically reject implementation of 2 per cent export tax by the provincial government and stated that export tax would negatively impact exports from the province. They furthermore said KP export cess will undermine the competitiveness of Pakistan’s exports. A large number of vehicles-loaded with essential food items were entered on regular basis in city and other parts of the province, after the imposition export tax.

The prices of daily use items will go up instantly, said Shakeel Ahmad Saraf, president of the Peshawar Small Traders and Small Industries (PST&SI). He said price-hike will directly affect the already inflation-stricken people of the province. Exports cannot be taxed, and they should be incentivised “if we are serious about the progress of the country and the prosperity of the people of Pakistan,” he remarked. “Exports are vital to the country. All governments need to support this national effort,” he said.

Businessmen recommended the federal government convince KP province through the Council of Common Interests for the exemption of exports from direct and indirect provincial levies. Like the consignments routed through KP, this additional cost will now apply to all exports via Balochistan to Afghanistan and Central Asia, as well as Iran, Turkiye and beyond, traders say.

“Exports are vital to the country. All governments need to support this national effort,” Shakeel Saraf remarked. He urged the provincial government to review its decision and take it back immediately. Small traders will soon decide future course of action against export tax, if the government didn’t pay heed to their demands, he warned.

Copyright Business Recorder, 2025

The targets on revenues, expenditures and surpluses/deficits by the federal and the four provincial governments tend to impart a high degree of optimism about the likely financial outcome in the coming financial year.

The consolidated budget deficit of the federal and provincial governments combined is targeted at Rs 6,501 billion in 2025-26. This will actually be lower even in absolute terms in relation to the deficit in 2024-25 of Rs 7,444 billion. The decline is even more pronounced as a percentage of the GDP, at 3.9 percent of the GDP as compared to 5.6 percent of the GDP in 2024-25.

Achieving a deficit of below 4 percent of the GDP will be an outstanding achievement. The last time we saw a deficit of below 4 percent of the GDP was as far back as 2003-04. In the intervening years, there have been years like 2018-19 when it approached even 8 percent of the GDP. For the first time the limit imposed by the Fiscal Responsibility and Debt Limitation Act of a maximum budget deficit target of up to 4 percent of the GDP is being adhered to.

The targeted budget deficit of 3.9 percent of the GDP is based on a federal deficit of 5.0 percent of the GDP and a provincial cash surplus of 1.1 percent of the GDP. The corresponding magnitudes for 2024-25 were respectively 6.5 percent of the GDP and 0.9 percent of the GDP. Therefore, bulk of the improvement in the state of public finances in 2025-26 is expected to come from a quantum reduction in the federal budget deficit by as much as 1.5 percent of the GDP.

These expectations are even more optimistic than the IMF. The Staff Report of the IMF of the 17th of May 2025, following the successful first review, envisages a consolidated budget deficit of 5.1 percent of the GDP in 2025-26 and a primary surplus of 1.6 percent of the GDP. The federal Ministry of Finance must be duly commended for aiming to even exceed the expectations of the IMF.

The fundamental problem is that the targeted deficit of 3.9 percent of the GDP and a primary surplus of 2.6 percent of the GDP in 2025-26 are based on fragile assumptions about the high growth in revenues and substantial containment of expenditures.

We focus first on the revenue projections and targets. The growth rate targeted for in FBR revenues is a strong 20.5 percent, compared to the projected increase in the GDP of 13 percent. The implied change in the federal tax-to-GDP ratio is 0.5 percent of the GDP. This is to follow the extraordinary jump in 2024-25 of 1.4 percent of the GDP. Consequently, inclusive of provincial tax revenues and the petroleum levy, which is effectively a tax, the national tax-to-GDP ratio is expected to rise to 13 percent of the GDP in 2025-26.

The realization of this target will imply that since 2022-23 there will be a spectacular improvement in the overall tax-to-GDP ratio by almost 3 percent of the GDP. In the event this happens, the performance in the realm of public finances, especially of the FBR, will need to be fully recognized.

However, the normal growth in FBR revenues is likely to be close to 12 percent, subject to the nominal GDP growth of 13 percent. Therefore, an additional increase of 10.5 percent is required through taxation measures in the federal budget. This is equivalent to Rs 1230 billion. The estimate of the likely generation of revenues from taxation measures and improvements in tax administration is close to Rs 650 billion. As such, there is a risk of a shortfall in FBR revenues of Rs 580 billion in 2025-26.

The other questionable projections relate to non-tax revenues. Despite the quantum decline in interest rates, SBP profits are expected to be very high at Rs 2400 billion, only marginally below the peak level of Rs 2,619 billion in 2024-25. The IMF Staff Report expects federal non-tax revenues in 2025-26 to be smaller by almost Rs 1000 billion in comparison to the level of these revenues in 2024-25. It is likely that the official estimates of non-tax revenues for 2025-26 are overstated by a similar amount.

The other source of non-tax revenue, which is probably also overstated, is the revenue from the petroleum levy. It is expected to rise by as much as 26 percent. A part of the increase will be due to the introduction of the carbon levy of Rs 2.50 per litre. However, with oil prices have gone up somewhat after the Iran-Israel war, there is less space for raising the petrol levy. This implies that there could be a shortfall of almost Rs 200 billion.

Overall, given the likely shortfalls identified above, the total federal revenues in 2025-26 may see a big shortfall of as much as Rs 1780 billion in relation to the targets. This will be equivalent to 1.5 percent of the GDP.

Turning to the expenditure side of the federal budget, there is need to start with some apparently good news. The level of current expenditure is targeted at Rs 16,286 billion in 2025-26, which is even lower in absolute terms than the level of Rs 16,390 billion in 2024-25.

The problem is that this absolute decline is expected to occur despite the 10 percent hike in salaries, 7 percent increase in pensions, 17 percent jump in defence expenditure and 20 percent expansion in the outlay on the Benazir Income Support Programme (BISP).

Where then are significant declines anticipated in other heads of current expenditure? The first is debt servicing. The mark-up payments are projected to decline by almost Rs 740 billion in 2025-26 from the actual level in 2024-25. This is despite the fact that the volume of government debt will increase by almost 8 percent. Clearly, the expectation is of a big fall in interest rates.

However, the rate of inflation, according to Consumer Price Index (CPI), is projected to rise to 7.5 percent in 2025-26 from 4.5 percent in 2024-25. Already, the core rate of inflation has approached 8 percent in May 2025. Further, the IMF will insist on a tight monetary policy in the Programme. Therefore, it is unlikely that there will be significant decline in interest rates in 2025-26 and the reduction proposed in debt servicing will be difficult to achieve.

The other current expenditure head where a containment is anticipated is in the subsidy bill. It is projected at Rs 1186 billion, compared to the actual level of Rs 1378 billion in 2024-25. Most of the fall is expected in the power tariff differential subsidy and other payments in the power sector of Rs 154 billion. Given the failure of the government to increase efficiency in operations of the power sector, this saving will remain very elusive.

Overall, the actual level of current expenditure in 2025-26 is likely to be higher due to the above-mentioned reasons by almost Rs 900 billion. This will be equivalent to 0.7 percent of the projected GDP in 2025-26. Overall, with revenues lower than the budgeted level by 1.5 percent of the GDP, the federal budget deficit is likely to be higher by 2.2 percent of the GDP, and approach 7.2 percent of the GDP.

Finally, there are clear indications from the provincial budgets that the provincial cash surplus of Rs 1464 billion for 2025-26 is unlikely to be met, especially with the likelihood of a significant shortfall in federal transfers. The only provincial government, which has targeted for a large cash surplus of Rs 963 billion, is that of Punjab. Sindh has actually shown a deficit. Therefore, a significant gap in achieving the target is likely of up to Rs 500 billion, equivalent to 0.4 percent of the GDP.

The bottom line is that the federal budget for 2025-26 is fragile. There are a number of factors identified, which could raise the consolidated budget deficit from the target level of 3.9 percent of the GDP to almost 6.5 percent of the GDP, even higher than the deficit of 5.6 percent of the GDP in 2024-25. The primary surplus is likely to be zero or even negative.

Given the relatively higher risk and uncertainty in the outlook for public finances in 2025-26, there is need for a high quality of financial management at the federal and provincial levels. We would like to see much less deviation than identified above from the key budgetary targets of 2025-26 and success in meeting the apparently less ambitious IMF programme targets.

Copyright Business Recorder, 2025

The business-friendly revisions include zero tariffs applicable on 2201 tariff lines to be extended to an additional 916 lines and reduction of customs codes on 2624 PTC codes. At the outset it is relevant to note that phasing out import taxes has been a long-standing loan condition by multilaterals and this particular amendment to the Finance Act is unlikely to be challenged by the International Monetary Fund (IMF) staff whose approval is critical to the success of the second staff-level review followed by tranche disbursement.

However, it has not yet been clarified as to how much of the budgeted collections by the Federal Board of Revenue (FBR) would be negatively impacted by these measures. This shortfall in budgeted revenue collection would, one may safely assume, generate the need to impose additional taxes (mini-budget) later in the year as part of the contingency measures agreed with the IMF staff under the ongoing Extended Fund Facility (EFF) programme.

Without Fund approval pledged external assistance releases would not be forthcoming to stave off the still looming threat of default. This stands to reason as both the Finance Minister and the Chairman FBR have publicly stated that in the event that the 389 billion rupees budgeted under enforcement measures is not realised there would be a need to impose additional taxes though the amount noted by the two men has varied between 400 and 600 billion rupees.

There is no doubt that the investment climate in the country needs pro-business measures as the large-scale manufacturing sector (LSM) continues to show an increase in negative growth — negative 1.47 percent July-March 2024-2025 against 0.92 percent 2023-24. This deterioration is in spite of the discount rate being slashed from 22 percent to 11 percent (June 2024 to June 2025) and a decline in electricity tariffs though captive power plants will now be taxed, again an IMF condition. The draconian measures that consist of enhancing the powers of the FBR officials, slightly watered down by parliament, may further compromise productivity in the LSM sector.

Be that as it may, successive Pakistani governments have relied on monetary and fiscal incentives to industry though as per the EFF documents uploaded on the Fund website in October 2024, “The government’s intervention in price setting, including for agricultural commodities, fuel products, power, and gas (biannual), combined with high tariff and non-tariff protection tilted the playing field in favour of selected groups or sectors. Despite all this support, the business sector has failed to become an engine of growth, and the incentives eventually weakened competition and trapped resources in chronically inefficient (including perpetually “infant”) industries.”

In marked contrast to the reduction in import tariffs, exemptions are vigorously opposed by multilaterals as they are largely, if not entirely, supportive of the rich and influential. It is fairly evident that exemptions on the pension of Pakistani presidents falls in the category of benefiting the rich and the influential and is not justified, especially given the economy’s fragility.

The most disappointing aspect of the budget 2025-26 is the fact that there have been no reforms in the tax structure and the reliance on indirect taxes, whose incidence on the poor is greater than on the rich, remaining intact as they are easy to collect. Direct taxes based on the ability to pay principal continue to consist of withholding taxes in the sales tax mode (which are indirect taxes) comprising of 75 percent of total collections.

Copyright Business Recorder, 2025

The Punjab Assembly session, delayed by four hours and four minutes, commenced under the chairmanship of Speaker Malik Muhammad Ahmad Khan.

On the occasion of International Day of Democracy, Syed Ali Haider Gillani, the parliamentary leader of the Pakistan People’s Party (PPP), presented a resolution in the House, which was passed by a majority vote. Upon completion of the agenda, the Punjab Assembly session was adjourned indefinitely.

Addressing the assembly, Speaker Malik Muhammad Ahmad Khan talked in detail on the significance of parliamentary rules rooted in constitutional principles. “The House operates under constitutional rules, which hold sanctity,” he stated. “Whether it’s the oath, the quorum of members, the roles of the Speaker, Deputy Speaker, Leader of the House, or Leader of the Opposition—all are defined by the Constitution. The conduct of business is not subject to anyone’s will but is bound by constitutional provisions.”

He further highlighted that the Governor’s address, call-attention notices, or ministerial reports are all enshrined in the Constitution. Criticizing disruptive behaviour, the Speaker remarked, “There was deafening noise about stolen elections and claims that the government was formed through Form 47. Efforts were made to craft a narrative based on 37 excuses, but why was no discussion held on such conduct that violates the sanctity of the Assembly?”

Asserting his commitment to upholding the law, the Speaker declared, “I will not allow any violation of the law in the Punjab Assembly. Disputes are part of democratic representation, but I will not permit disgraceful behaviour, especially the hurling of abuses that demean women.”

On this occasion, the Speaker also directed treasury members to table a resolution against the opposition’s conduct.

During the session, government member Ahsan Raza speaking on the point of order said, “Your decision to strengthen Parliament on International Parliament Day is commendable. The strength of democracy lies in the strength of Parliament. Parliament is a strong and sacred institution, but the storm of misconduct witnessed here is not a good sign for democracy. The opposition should adopt parliamentary language. The leadership of PML-N has always played its part in strengthening democracy.”

Government member Amjad Ali Javed remarked, “The Chair has always tried to work with the opposition, but they unleashed a storm of misconduct under the guise of the right to protest. The Chair repeatedly attempted to explain that democratic traditions should flourish, but they refused to understand.” He added, “Speaker Malik Muhammad Ahmad Khan has established democratic traditions in the House that were not present before.”

Government member Madad Ali Shah, said, “If no one guide a child he will be spoiled. It is our duty and responsibility to curb the opposition’s misconduct.”

Another government member, Salahuddin Khosa, stated, “The opposition itself sent the founder of PTI to jail. The opposition leaders flattered the founder so much that they elevated him to the skies. Their behaviour is not just a problem for themselves but for their party as well.”

During the session, government member Ahsan Raza addressed a point of objection, stating, “Your decision to strengthen Parliament on International Parliament Day is commendable. The strength of democracy lies in the strength of Parliament. Parliament is a strong and sacred institution, but the storm of misconduct witnessed here is not a good sign for democracy. The opposition should adopt parliamentary language. The leadership of PML-N has always played its part in strengthening democracy.”

Punjab Finance Minister Mujtaba Shujaur Rehman addressed the Punjab Assembly, announcing that the current fiscal year’s budget stands at Rs. 5,345 billion, with a development budget of Rs. 1,240 billion. He stated that the government has fulfilled the International Monetary Fund’s (IMF) condition by maintaining a budget surplus. This year’s supplementary budget exceeds Rs. 510 billion, with Rs. 266.6 billion allocated for developmental expenditures.

The minister emphasised prioritizing public welfare projects over salary increases, with the largest share of resources— Rs. 126 billion—dedicated to road infrastructure. Punjab’s total budget exceeds Rs. 1,013 billion, aimed at fostering sustainable economic growth. To curb wasteful spending, the government has initiated public welfare schemes, ensuring a fast-paced and socially equitable budget.

During the session, the Punjab Assembly approved a supplementary budget worth over Rs. 510 billion for the fiscal year 2024-25. Key allocations include Rs. 46.50557 billion for Police department, Rs. 2.341609716 billion for irrigation, Rs. 172.349 million for Forest Department, Rs. 461.467 million for Motor Vehicle Taxes, Rs. 492.502 million for Other Taxes and Duties, Rs. 16.935542 billion for Health Services, Rs. 13.625407 billion for Public Health and Rs. 4.870510 billion for Agriculture.

In total, 38 supplementary demands worth Rs. 509.712246289 billion were approved.

Finance Minister Mujtaba Shujaur Rehman announced a three-month honorarium salary for all staff of the Punjab Assembly Secretariat, the Law Department, and the Chief Minister’s Secretariat.

The Punjab Assembly unanimously passed a resolution on the International Day of Democracy, presented by Pakistan Peoples Party (PPP) Parliamentary Leader Syed Ali Haider Gillani. The resolution highlighted that the United Nations General Assembly, in 2018, designated this day to encourage parliamentary institutions worldwide to strengthen public engagement.

The resolution stressed that democracy thrives when institutions are strong and inclusive. This year’s theme, “Strong Parliaments for Democracy,” underscores the pivotal role of legislatures in lawmaking, minority rights protection, and policy formulation. It called for collective efforts to strengthen and uphold parliamentary traditions, condemning undemocratic attitudes as detrimental to democratic progress.

Copyright Business Recorder, 2025

Of course, deep structural flaws remain, and the recent budget did little to suggest reformist ambitions, but that’s a story for another day. For now, it’s fair to say: things were bad, they’re less bad now. Celebrate? Sure. Overstate? Apparently, yes. Fabricate? Why not!

One might assume that a government enjoying full-spectrum dominance—with the judiciary nodding, the military saluting, and the opposition napping—wouldn’t need to invent good news. There’s real stuff to work with. But Islamabad, ever the overachiever in narrative control, just can't help itself.

Take, for instance, the recent spectacle over the Henley Passport Index. The Government of Pakistan’s official X account proudly declared, “Pakistan’s Passport Earns Global Recognition”, hailing it as a “notable milestone in Global Mobility.” Sounds impressive—until you read the fine print: Pakistan ranks 100th out of 103. Only Syria, Iraq, and Afghanistan are below. Global mobility, indeed—just not forward.

Officials even credited “new e-gates” at domestic airports for this international breakthrough. One imagines a team of bureaucrats proudly scanning their own passports at Islamabad Airport and calling it a visa-free success.

Never mind that Pakistan’s “global mobility” score of 32 means visa-free or visa-on-arrival access to just 32 countries—a list that could double as a geography quiz most Pakistanis would fail. Go ahead, try finding Tuvalu, Niue, or Palau Islands on a map—or even spelling them. When your mobility milestone includes access to Vanuatu, Micronesia, and Montserrat, the only thing moving globally is the punchline.

Faced with ridicule, the post vanished. Deleted. No clarification. No accountability. Just a digital puff of smoke.But wait—there’s more.

Another round of chest-thumping emerged from a supposed “Bloomberg Intelligence Global Emerging Market Default Risk Ranking,” where Pakistan, topped the chart. Yes, Pakistan’s default risk outlook has improved. Credit default swaps have narrowed. Ratings agencies have softened their tone. But why let nuance get in the way of a perfectly viral slogan? By no stretch of imagination does this indicate Pakistan being the “most improved economy” in the world as headlines have had it.

It would be funny, if it weren’t so tragic.

Because here’s the real scoreboard: 44 percent of Pakistanis live below the poverty line. 52 percent of households still use firewood to cook. 22 percent don’t have a kitchen. 25 million children are out of school. In a country with such staggering deficits in human development, spending energy on barely believable self-congratulatory fiction should be—at best—a footnote. At worst, a farce.

Here’s hoping that simply pointing out the bare minimum doesn’t irk the “hybrid.” Then again, satire is only dangerous when it holds a mirror.