 "New taxes on petrol, pensions, power, investments: What budget brings for Pakistanis")
Cash-strapped Pakistan’s Budget 2025-26 brings a huge hike for the military, but deals a blow to commoners with new taxes, hikes in existing taxes, and removal of tax exemptions.
The result is that even though Pakistan's military gets 20 per cent more funds than last year, the overall government expenditure is projected to fall by 7 per cent in the coming fiscal year. The budget is in line with the austerity measures required by the International Monetary Fund’s (IMF) bailout plan.
Pakistani Finance Minister Muhammad Aurangzeb announced new tax on fuel, pensions, and interest income. He also announced the removal of tax exemptions for tribal regions in the country’s west.
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Aurangzeb, however, offered tax cuts to the salaried class and incentives to the construction sector. However, these benefits cover just a little over a fifth of the country’s population while tax hikes cover nearly the entire population.
From petrol to pensions, Pakistanis have more taxes
In the Budget 2025-26, Finance Minister Aurangzeb has introduced 2.5 per cent ‘carbon tax’ on every litre of petrol, diesel, and furnace oil.
Aurangzeb has also hiked tax on interest income to 20 per cent from 15 per cent. The move is set to disincentivise savings.
Under the new tax regime, pensioners under the age of 70 will now face 5 per cent tax on pensions over Rs 10 million a year.
Impact Shorts
More ShortsMoreover, those who do not file income tax will face 1 per cent advance tax on all cash withdrawals. Such tax was previously 0.6 per cent.
Imported solar panels will now be taxed at 18 per cent, according to Aurangzeb’s proposals.
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In addition to these new taxes and hikes in existing taxes, Aurangzeb has announced the gradual removal of tax exemptions for tribal regions. These exemptions have been extended to certain parts of Khyber Pakhtunkhwa and Balochistan provinces where tribal communities live.
‘We have to surpass India’
As his finance minister hiked taxes for the masses and served a 20 per cent hike the military, Prime Minister Shehbaz Sharif said that the objective was to surpass the Indian economy. For context, the Indian economy is 10 times bigger than Pakistan’s economy.
“After defeating India in a conventional war, now we have to surpass it in the economic field,” said Sharif.
Even though India battered Pakistan in Operation Sindoor , laying waste to a score of airbases and other military sites, Shehbaz and his army chief, Field Marshall Asim Munir, have claimed victory over India in the last month’s conflict.
On his part, Aurangzeb said that the budget was the start of a strategy to boost exports, increase foreign currency reserves to avoid the balance of payments crises that have rattled Pakistan over the years, and create a more competitive economy.
“In short, our budget strategy is to change the economy’s DNA by bringing basic changes,” said Aurangzeb.
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