ISLAMABAD: Backed by first-ever provincial grants exceeding Rs1 trillion, Finance Minister Muhammad Aurangzeb unveiled a Rs18.8 trillion federal budget on Friday, proposing significant tax relief for the salaried class and real estate sector while deepening economic liberalization.
Budget Size and Deficit
The expansionary budget is 20% higher than the outgoing fiscal year's revised outlay, marking a shift from consolidation to spending. Despite provincial contributions, the federal government announced a Rs7 trillion deficit, which will be filled by additional borrowing. The government also plans to secure $23.4 billion in foreign loans, including $2 billion through Euro and Panda bonds.
Key Tax Measures
- Super tax abolished on annual incomes up to Rs500 million; reduced to 8% for higher incomes, but remains at 10% for banks, fertilizer, and oil sectors.
- Ban reintroduced on major purchases exceeding Rs100 million unless supported by declared white money.
- 5% income tax imposed on social media income.
- 30% federal excise duty on electric vehicles up to Rs30 million; 40% on those above Rs30 million.
- 18% sales tax imposed on hybrid vehicles.
Tax Relief and Enforcement
The government proposed Rs306 billion in additional tax measures but provided Rs360 billion in relief. Enforcement measures worth Rs354 billion were also proposed. The FBR's tax-to-GDP ratio is expected to remain around 10.5%. The petroleum levy target is set at Rs1.748 trillion, based on Rs80 per liter levy.
Salary and Pension Increases
A 7% increase in salaries and pensions was announced, though public sector employees expressed dissatisfaction. The salaried class received Rs52 billion in tax relief, while the real estate sector received Rs115 billion.
Provincial Grants and Shares
For the first time, three provinces (excluding Balochistan) provided Rs1.035 trillion in grants to the FBR. Punjab will receive Rs4.4 trillion, Sindh Rs2.2 trillion, and Khyber-Pakhtunkhwa Rs1.44 trillion. However, K-P's finance adviser reiterated that the province would only release funds after a meeting with party founder Imran Khan.
Defense and Development Spending
The defense budget is proposed at Rs3 trillion, 16% higher than the current year, due to tensions with India and Afghanistan. Out of the Rs1 trillion provincial grant, Rs335 billion is allocated for defense. Development spending is only Rs1 trillion, while interest payments consume Rs8 trillion (43% of the budget).
Revenue Projections
Gross federal revenues are projected at a record Rs20.6 trillion, including FBR tax target of Rs15.264 trillion and non-tax revenues of Rs5.3 trillion (mainly from petroleum levy and SBP profit). The government will borrow Rs7 trillion to finance the budget.
Social Programs
The BISP programme receives Rs838 billion, expanding coverage to over 12 million beneficiaries. The government also expects Rs160 billion from privatization of power distribution companies.
Foreign Loans
Foreign loans of $23.4 billion are expected, including rollover of $12 billion debt by China and Saudi Arabia.
