The budget speech has offered a degree of hope. The initial im-pression is that there are no major new taxes, while relief has been extended to the corporate sector, particularly goods exporters, real estate players, high-net-worth individuals, and the salaried class.
At the same time, there has been no extraordinary increase in salaries for government employees or pensions for retirees. Overall, it appears the government is now trying to shift the economy from stabilization toward growth.
Yet serious challenges remain — especially in achieving the FBR’s ambitious tax target and managing imports if the economy actually moves onto a growth trajectory.
As someone aptly put it, the economy is still in a coma, but with a few lollipops — mainly for the affluent. The biggest puzzle is this: with so many relief measures and no major new revenue steps, how does the government expect FBR tax collection to grow by 17.6 percent when nominal GDP is projected to rise by only 13.2 percent? Where will the extra 4.4 percentage points — plus the cost of the tax relief — come from?
Some argue that the government is already assuming the FBR will miss its target, and that the shortfall in the fiscal framework will be bridged through a Rs1.1 trillion one-time provincial grant under Article 164. That would help meet the primary fiscal balance target, while the government could seek an IMF waiver on the revenue side — similar to the 2013-16 programme, when the then PML-N government obtained multiple waivers.
But there is a catch.
According to the finance minister’s budget speech, provinces will receive their full NFC share up to FBR revenues of Rs13.35 trillion. For collections between Rs13.35 trillion and Rs15.3 trillion, provinces are expected to return 57.5 percent of their share as a grant to the federal government. If FBR collections fall short — which many consider likely — the provincial grant will also shrink proportionately.
For now, however, the government is enjoying the applause. The wealthy have reason to celebrate: the super tax exemption threshold has been raised to Rs500 million, the capital value tax on foreign assets has been abolished, taxes on business-class travel reduced, taxes on foreign credit-card transactions cut, and real estate and construction taxes softened.
The salaried class is also expected to respond positively. The solar industry is relieved that the anticipated tax was not imposed, and exemptions on CKD imports for EVs will continue, though the broader auto policy is still awaited. A few concessionary schemes have also been introduced.
Exporters, too, are largely satisfied. Textile firms are free from the super tax, while reduced withholding taxes should improve cash flows, even though exporters had hoped for the minimum tax to be abolished altogether.
The income tax exemption for IT exports has been extended for three years, concessionary financing rates have been lowered, and other incentives remain in place. Whether these measures actually translate into significantly higher exports remains to be seen, but exporters’ earnings are certainly set to improve.
Traders are pleased because the measures amount, in practice, to a form of amnesty. Some FMCG companies are also benefiting, as certain products are being moved from the Third Schedule to the standard GST regime, removing the additional 4 percent sales tax burden.
The stock market is euphoric. Investors see higher profitability — and therefore higher valuations — across multiple sectors due to lower taxes. There is also anticipation that refinery and auto-sector policies will provide additional incentives.
Real estate players are equally jubilant. Tax relaxations, combined with expectations of larger inflows of money from the UAE for well-known reasons, could inject fresh momentum into both property and equity markets.
What is notably missing from the budget is any meaningful support for the poor and lower-income segments of society.
While the affluent, businesses, investors and much of the middle class have received tax relief and incentives, there is little on offer for those struggling with the cost-of-living crisis.
The minimum wage has been increased by only 10 percent, a modest adjustment at a time when inflation remains elevated and fuel prices are once again on the rise. For low-income households, whose budgets are disproportionately affected by higher transport, electricity and food costs, the increase is unlikely to provide any significant relief.
The budget may generate optimism among investors and taxpayers, but its benefits are far less visible for those at the bottom of the income ladder. Meanwhile, the official growth target is only 4 percent, while inflation is projected at 8.2 percent — above the SBP’s medium-term target range of 5-7 percent. That is not disastrous, nor is it a sign of a robust economic recovery.
For now, everyone is enjoying the lollipop. But sooner or later, reality tends to catch up. If FBR misses its target, provincial grants may not materialize in full. If the IMF refuses a waiver, a mini-budget could become unavoidable. And even if a waiver is secured, stronger growth could once again overheat the economy through imports and external imbalances.
Pakistan’s structural problems have not disappeared. They have merely been pushed a little further down the road. Until then, though, it is party time.
Copyright Business Recorder, 2026
Ali Khizar is the Director of Research at Business Recorder. His Twitter handle is @AliKhizar