Pakistan eyes PKR 14 trillion revenue in FY26 budget, plans PKR 600 billion in new taxes

The federal government is preparing to unveil the budget for fiscal year 2025-26, aiming to generate over PKR 14 trillion in revenue through new taxation measures totaling around PKR 600 billion, according to a report by Topline Securities.

The FY26 budget will continue to prioritize fiscal consolidation, align with International Monetary Fund (IMF) guidelines, and bring untaxed and low-tax sectors into the formal net. Several new legislative steps are expected, including the inclusion of Section 114c, implementation of the National Tariff Policy, Captive Power Levy Ordinance, and removal of the cap on the Debt Servicing Surcharge (DSS).

IMF commitments

According to Topline, the government has pledged to the IMF that it will maintain fiscal discipline to ensure debt sustainability. For FY26, the primary surplus is projected at 1.6% of GDP — the third consecutive surplus after two decades. Any windfall dividends from the State Bank of Pakistan exceeding 1% of GDP will be used to retire public debt.

Potential 6-year low FBR target

The Federal Board of Revenue (FBR) is expected to target PKR 14.1–14.3 trillion in tax revenue — a year-on-year increase of 16-18%, the slowest growth rate in six years. The FBR has maintained a five-year compound annual growth rate of 25% from FY21–25.

Out of the projected 16-18% revenue growth, approximately 12% is expected to stem from autonomous growth driven by a GDP forecast of 3.6% and inflation of 7.7%. The remaining 4–5% increase, or PKR 500–600 billion, will need to come from new taxation measures.

Expected revenue measures

Few expected measures which are already announced by the government include a change in GST calculation price of sugar from PKR 72.22 per kg to market price with the measure expected to yield annual incremental revenue of PKR 70-80 billion, introduction of tax on pension, removal of exemptions on FATA/PATA, tax on retailers and wholesalers, increase in FED on cigarettes, increase in FED on fertilizer products and pesticides by 500 basis points, a tax on income of freelancers/vloggers/Youtubers, and removal of remaining exemption or increase in sales tax on goods mentioned in Schedule 5, 6, and 8 i.e. pharma and food amongst others.

Expected relief measures

The government is expected to announce some relief measures namely extension in exemption limit on salary or reduction of tax rate by 2.5% for all salary brackets, rationalization of duties on trade, housing finance subsidy, inflation adjustment in minimum salary and unconditional cash transfer, and some rationalization in super tax.

Economic growth target

The GDP growth target for FY26 is expected between 3.5–4.5%, primarily driven by the services sector.

Stock market outlook

Topline expects the budget to have a neutral short-term impact on the Pakistan Stock Exchange. However, in the medium term, it is likely to be viewed positively, especially if it signals economic stability. Market volatility may persist due to ongoing geopolitical tensions with India unless a peace agreement is reached.

Sector-wise, the FY26 budget is expected to be neutral to positive for cement, steel, oil and gas, consumer goods, and independent power producers. It is anticipated to remain neutral for OMCs, IT, banks, pharmaceuticals, autos, and textiles.