Pakistan sets sights on global bonds, tax-to-GDP boost; SBP gears up for housing finance rollout

Federal Minister for Finance and Revenue Muhammad Aurangzeb on Wednesday emphasized that tariff reforms are essential for driving economic growth and increasing exports, describing them as a critical step toward aligning Pakistan’s trade and industrial policies with global standards.

Speaking at a post-budget press briefing, Aurangzeb termed the tariff rationalization a “major and important step” that signals the start of a phased move toward a simplified tariff regime -- ultimately aiming for an average tariff rate of just over 4%.

“Overall, there are 7,000 tariff lines. We’ve removed additional customs duty from 4,000 lines, and in 2,700 of these, customs duty itself has been reduced,” he said. “Importantly, about 2,000 of these lines are directly linked to raw materials and intermediate goods used by exporters.”

He called it a long-overdue structural reform, noting that such a comprehensive overhaul hasn’t been attempted in the last 30 years. “It’s a significant milestone, and we are committed to moving forward gradually,” he added.

On external financing, he said Pakistan plans to raise funds from the international bond market and will retire a $500 million Eurobond in September, followed by another maturity in March. He added that the government aims to re-enter the Eurobond and U.S. bond markets in FY2026–27, contingent on achieving an improved credit rating.

In the meantime, Pakistan plans to launch a Panda bond in the upcoming fiscal year, he said.

Aurangzeb dismissed concerns about short-term revenue loss, arguing that the reforms are a strategic investment in long-term, export-led growth. “Some ask whether revenue will decline, but if we want to shift towards an export-driven economy, we must take bold steps -- and highlight them accordingly.”

He reiterated the government’s broader goal of redesigning Pakistan’s tariff framework to support industrial growth and deeper integration with global supply chains.

NFC meeting in August

On the National Finance Commission (NFC) Award, the minister confirmed that all decisions would be made in full consultation with the provinces.

“Nothing will be done unilaterally, including matters related to the national fiscal pact,” he said, adding that the NFC meeting will be held in August under the prime minister’s chairmanship.

Managing salaries, pensions and spending within limits

Turning to salaries and pensions, Aurangzeb stressed the importance of aligning them with inflation-based benchmarks, both in the public and private sectors. “Globally, salary adjustments are tied to inflation, which currently stands at 7.5% in Pakistan,” he noted. “It is also our responsibility to curtail federal expenditures. This year, we’ve capped them at 2%.”

He acknowledged that while some expenditures have increased, they were essential and aligned with the country’s financial limits. “We must operate within our fiscal space. Everything we are providing is funded through borrowing.”

As part of the government’s economic package, import duties have been reduced by 4% across a broad range of items. Aurangzeb also announced that income tax on salaried individuals has been cut in line with available fiscal space.

Relief for real estate sector

In a significant move to stimulate the real estate sector, the minister said the withholding tax on property purchases has been reduced across all slabs. The rate has been lowered from 4% to 2.5% in the first slab, from 3.5% to 2% in the second, and from 3% to 1.5% in the third.

Moreover, the 7% federal excise duty imposed last year on the transfer of commercial properties, plots, and houses has been abolished. Aurangzeb further announced a tax credit for buyers of houses up to 10 marla and flats up to 2,000 square feet.

To promote home ownership through financing, the government plans to strengthen mortgage financing. The stamp duty on property purchases in Islamabad has also been slashed from 4% to 1%, aiming to make real estate transactions more affordable.

The minister further revealed plans for a new mortgage financing initiative, in collaboration with the State Bank of Pakistan, to address the country's home financing gap.

He said that the government has set a tax-to-GDP ratio target of 10.9% for the next fiscal year. Customs duties have been reduced on 2,700 products to support industrial productivity.

To support small farmers, Aurangzeb announced plans to increase access to credit. “We are trying to provide as much relief as possible, but it must remain within our financial capacity,” he said. He also clarified that no new taxes have been imposed on the agriculture sector.

The minister said that both pensions and salaries have been adjusted in line with inflationary trends.