EDITORIAL: The federal finance minister, Senator Muhammad Aurangzeb, presented yesterday the third budget of the incumbent government for the fiscal year 2026-27 in the National Assembly that has a total layout of 18,771 billion rupees; an increase of 8.33 percent over the revised outlay of 15,642 billion rupees for the outgoing FY26.
Total FBR revenue has been estimated at 15,264 billion rupees of which 8,848 billion rupees (57.5 percent) shall go to the provinces under the National Finance Commission award.
Non-tax revenue of the federal government (primarily through the petroleum levy and State Bank profits) has been estimated at 5,336 billion rupees.
The net revenue of the federal government would then be 11,751 billion rupees. To augment its resource mobilization to fund its strategic projects the federal government has had to rely on the provincial governments and they have risen to the occasion and agreed to freeze their receipts from the divisible pool at last year’s level.
To do this, the provincial governments would have to apply cuts to their public sector development programmes. It is estimated that the subvention by the provinces would amount to about 1,790 billion rupees, thus reducing the fiscal deficit from 7020 billion to 5230 billion rupees, representing 3.6 percent of GDP.
The growth rate in the economy has been estimated at 4 percent of the GDP; it is a considerably doubtful figure considering the overhang of the Middle East conflict, the ensuing supply chain disruptions and the increasing sentiment in the developed world towards protectionism in trade.
Conspicuously absent from the budget proposals is any attempt to broaden the tax base in any meaningful manner. The so-called agreement reached with the traders to tax them on the basis of turnover is neither here nor there in terms of the quantum of tax to be generated, and more importantly, it would not broaden the tax net in any significant manner. To do this the government should ensure application of the already existing Shops and Establishment Act, making it incumbent on every trader to register their establishment under this law and display their registrations prominently in their respective establishments. That would provide the government with the data base necessary to bring them under the tax net and ensure compliance.
The guiding principles for the budget have been described as: 1) Strategic tariff rationalization via the National tariff Policy 2025-30; 2) Simplification, trade facilitation and enhancement of system efficiency and; and 3) Targeted public health relief and economic stimulus for key sectors.
In pursuance of the stated guiding principles a 5 percent reduction in all slabs of existing Customs Duties has been proposed for input goods of different industrial sectors on 92 tariff lines. Additional Customs Duties on nearly 700 tariff lines have been reduced by 2 percent and Regulatory Duty regime has been pared down by over 1700 tariff lines.
The abolishment of Capital Value Tax (CVT) on ownership of foreign immovable and movable assets is a welcome step as it has militated against capital formation and also violated express assurances extended under the various tax amnesty schemes of the government.
In compliance with the judgment of the Federal Constitutional Court declaring tax on deemed income from immovable property section 7E of the Tax Ordinance as unconstitutional the same has been abolished. It would be interesting to know if the tax already collected under this defunct law would be refunded or adjusted accordingly in taxpayers’ future tax liabilities.
Super tax has been abolished on persons having income of up to 500 million rupees while rates are reduced for the incomes above that level.
Similarly, tax collected on export proceeds and IT and IT-enabled services have been reduced. There was a 5 percent tax on foreign payments made through cards; now it has been reduced to 0.5 percent in view of the fact that unofficial channels were being used to effect such payments.
The hefty Federal Excise Duty of 200,000 rupees imposed on airline travel tickets for Business Class has been withdrawn.
An outstanding feature of the ongoing year is extraordinary increase in home remittances that have exceeded forty billion dollars mark already. There is an obvious contribution of the disturbed conditions in the Gulf where a large Pakistani diaspora resides and a number of them seek to move their liquid assets from there. It would help their cause if the government would reinstate no-questions-asked allowable limit to ten million rupees, which has been reduced to five million in a year.
Remittances have definitely allowed the country to avoid severe external pressure; however, remittances cannot be a substitute for export proceeds as they feed consumption but do not directly create industrial capacity for export-led transformation, which is the stated objective of the government, and rightly should be if we are ever going to break the vicious cycle of twin deficits.
It is plausibly argued that depreciation in industrialised economies generally provides a fillip to exports; in Pakistan, however, it simply raises the debt servicing costs and cost of industrial raw materials because of our import substitution model of industrialisation.
The economy will continue to face its current challenges owing to a variety of reasons, including high population growth rate, poor allocations for education and health, lack of employment opportunities for hundreds of thousands entering the job market every year and the increasing number of people living below the poverty line.
The fact that heavy reliance of the government on borrowing stokes inflation and prompts the central bank to hike the policy rate which, in turn, increases the government’s need for debt servicing cannot be over-emphasized. However, what determines a country’s resilience is the strength of its economic fundamentals, including industrial capability, export competitiveness, logistics infrastructure and fiscal capacity.
Pakistan with weaker industrial capabilities and woefully inadequate fiscal space experiences far greater economic strain that other countries with similar inflation levels, according to a study conducted by the Asian Development Bank recently.
Concluding, a profound question that always begs for an answer is: does Pakistan’s seemingly beleaguered economy have any solution? This newspaper’s answer would be in the affirmative. Structural reforms or long-term policy changes that fully take into consideration the economic facts on the ground - both in the country and the region or the globe - will constitute the main pillar of a framework.
Such a set of rules, enjoying a strong political will along with higher judiciary’s support, will surely help the policymakers conceive, plan and execute policies aimed at bringing about an economic turnaround, albeit gradually and incrementally. First, we need to delineate the right path and commit to protecting and preserving it.
Copyright Business Recorder, 2026