The government is likely to continue fiscal consolidation in the upcoming budget and is expected to closely align with International Monetary Fund (IMF) guidelines, as the government remains committed to sustaining a primary budget surplus for the third consecutive year, a brokerage house said on Thursday.
“We expect this budget to continue fiscal consolidation, focus on IMF guidelines and bring untaxed/low tax areas in the tax net,” said Topline Securities, in its report titled Pakistan Federal Budget FY26 Preview.
“Furthermore, we believe, this Budget FY26 hold high importance from a policy point of view as various additional legislative engagements are likely to be undertaken, i.e. inclusion of Section 114c, National Tariff Policy, Captive Power Levy Ordinance, removing cap on Debt Servicing Surcharge (DSS) amongst others,” it said.
Pakistan is set to announce the Federal Budget FY26 on June 02, 2025.
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On the revenue front, Topline Securities believed that the Federal Board of Revenue (FBR) revenue target is expected to be around Rs14.1-14.3 trillion, up 16-18% YoY.
“We believe, out of this required 16-18% growth, ~12% would be achieved through autonomous growth driven by real GDP growth of 3.6% and inflation of 7.7%. The remaining 4-5% growth translates into additional tax measures of Rs500-600bn, we estimate.”
To meet its target, the government is expected to “(1) change in GST calculation price of sugar from Rs72.22 per kg to market price, this measure is expected to yield annual incremental revenue of Rs70-80bn, (2) likely introduction of pension tax, (3) likely removal of exemptions on FATA/PATA, (4) likely tax on retailers and wholesalers, (5) likely increase in FED on cigarettes, (6) increase in FED on fertilizer products and pesticides by 500bps, (7) likely tax on income of freelancers/vloggers/youtubers and (7) likely remove remaining exemption or increase in sales tax on goods mentioned in Schedule 5, 6, and 8 i.e. Pharma, food amongst others,” the brokerage house said.
On the other hand, the government may also announce a slew of relief measures in the upcoming budget, such as extension in exemption limit on salary or reduction of tax rate by 2.5% for all salary brackets, rationalization of duties on trade, likely housing finance subsidy, inflation adjustment in minimum salary and unconditional cash transfer, and some rationalization in super tax.
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Topline was of the view that the budget was likely to be “neutral for the market in the short term”.
“However, in the medium term, the market will take it positively, considering a stable economic roadmap, which would be signalled by this budget.
“Nonetheless, the relationship with India will keep the market volatile until a complete/new peace agreement is signed.”
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