By Asghar Ali Mubarak
The federal budget for the fiscal year 2026-27 is expected to be a defining moment for Pakistan’s economy as policymakers try to balance the strict requirements of the International Monetary Fund program with growing public demand for relief in the face of inflation. The government faces a difficult task of stabilizing fiscal indicators while also responding to pressure from households and businesses struggling with rising costs.
Across different sections of society, expectations for the upcoming budget, expected in June 2026, are building steadily. For the salaried class, the most important demand is an increase in the income tax exemption limit as inflation continues to erode real incomes. There is hope that the annual tax exemption threshold may be raised from six lakh rupees to between eight lakh and twelve lakh rupees. Alongside this, employees are also expecting a salary and pension increase of around fifteen to twenty per cent to help offset rising prices. At the same time, there is strong pressure to increase allocations for the Benazir Income Support Program so that the poorest households can be protected from further economic hardship.
The business community and industrial sector are also looking towards the budget with a number of expectations. One of the strongest demands is a reduction in electricity and gas tariffs, or at least targeted relief in energy pricing, as high costs of production are reducing competitiveness in global markets. Chambers of commerce argue that instead of increasing pressure on formal sectors, the government should expand the tax net by bringing undocumented retail, wholesale, and real estate activities into the system. Export-oriented sectors such as textiles and information technology are also hoping for continuity in duty drawback schemes and access to concessional financing in order to sustain export growth.
At the same time, the government remains under pressure from the International Monetary Fund to maintain fiscal discipline. This includes likely adjustments in taxation measures such as maintaining or increasing petroleum levies and general sales tax rates to meet revenue targets and reduce the budget deficit. The Federal Board of Revenue is expected to be given an ambitious revenue target supported by further digitalization and stronger enforcement mechanisms. Development spending is likely to remain focused on infrastructure projects, including the second phase of the China Pakistan Economic Corridor and various special economic zones.
Investment-related policies under the Special Investment Facilitation Council are expected to play a central role in the new budget. Incentives such as customs and income tax exemptions are likely for agriculture, mining, information technology, and green energy projects. The implementation of major foreign investment agreements, particularly those linked to commitments made with Chinese private sector partners, is also expected to be supported through legal and financial frameworks.
The information technology sector and freelancers are once again expected to remain a key focus area. The current concessional tax regime of zero point two five per cent on export income is set to expire in June 2026, and industry bodies are strongly demanding its extension for several more years. There is also discussion about increasing tax rates for unregistered digital workers, including freelancers and content creators, while introducing a clearer distinction between independent freelancers and remote salaried employees working for foreign companies. The latter group may be shifted to standard income tax slabs ranging from five to twenty per cent.
At the same time, the government is considering new support initiatives for the digital sector. These include a proposed fund for skills development, artificial intelligence training, and cloud computing education. Plans are also under review for establishing freelancing hubs in major cities with improved internet access and subsidized facilities. Banking reforms are being discussed to allow freelancers to retain a higher share of foreign earnings in foreign currency accounts, which would improve financial flexibility.
Digital commerce and online platforms may also face stricter taxation measures in the upcoming budget. These include possible taxes on foreign e-commerce platforms operating in Pakistan, social media advertising revenues, and online transactions. The objective of these measures is to expand the tax base in the rapidly growing digital economy while increasing government revenue.
In the real estate sector, the government appears to be moving towards a dual strategy of providing relief to revive market activity while discouraging speculative investment. A reduction in withholding tax rates for property buyers and sellers who are tax filers is under consideration, while higher rates are likely to remain in place for non-filers to promote documentation. Property valuation tables have already been reduced in major cities, which is expected to lower transaction costs. Additional proposals include new levies on second and additional properties to discourage speculative holding of land and encourage investment in construction activity.
Discussions are also ongoing regarding Section 7E taxation, which imposes a notional income tax on vacant properties. There is strong lobbying from real estate stakeholders and overseas Pakistanis for either relaxation or complete withdrawal of this provision. Any relief in this area is also expected to encourage higher remittance inflows into the country.
On the income tax side, there are expectations of revised slabs aimed at providing relief to middle-income earners. Lower income groups may see reduced tax rates, while adjustments in higher income brackets are also under consideration. However, the government is expected to fund this relief through increased taxation on traders, luxury goods, and cash-based transactions. This reflects the ongoing challenge of balancing relief with revenue generation under IMF constraints.
For government employees, an ad hoc relief allowance of around ten to fifteen per cent is under consideration, along with a possible ten per cent increase in pensions. Medical and conveyance allowances may also be revised in response to rising fuel and healthcare costs. Pension reforms are likely to change future calculations, with pensions being based on average salaries from the final years of service.
The Benazir Income Support Program is also expected to be expanded further. Proposals include an increase in quarterly cash transfers and wider coverage of eligible families. Educational scholarships for children and nutritional support for mothers and infants may also be enhanced to reduce poverty and improve social protection.
Despite these measures, Pakistan’s fiscal space remains limited. Debt servicing continues to consume a large portion of public expenditure, while development spending has repeatedly faced cuts in previous IMF programs. Defence and administrative costs have also increased due to inflation and security requirements. As a result, much of the budget remains dependent on external financing and optimistic growth assumptions.
The federal budget for 2026-27 therefore stands at a critical point, reflecting the ongoing tension between economic stabilization and public relief. The choices made will shape not only fiscal outcomes for the coming year but also Pakistan’s broader economic direction in the years ahead.
(The writer is a senior journalist covering various beats, can be reached at news@metro-morning.com)
