By Moaaz Manzoor

 Pakistan’s upcoming federal budget is expected to offer limited relief to taxpayers and businesses, as the government balances a steep revenue target with IMF-aligned reforms and strives to revive economic activity, reports Wealth Pakistan.

With the federal budget for the financial year 2026-27 now expected to be presented on June 10 instead of June 5, according to media reports, the key question for the salaried class, exporters and investors is whether the government can provide relief without undermining revenue collection.

A budget preview by Arif Habib Limited (AHL) expects the government to target FBR revenue of Rs15.264 trillion in FY27. It projects GDP growth at 3.5 per cent, inflation at 8.4 per cent and the current account deficit at 0.9 per cent of GDP, while expecting the budget to remain broadly aligned with IMF priorities, including tax-base expansion, stricter enforcement, energy-sector reforms and subsidy rationalisation.

The Policy Research and Advisory Council (PRAC), a leading think tank dedicated to providing insightful policy analysis and strategic advisory services, argues that the budget must move beyond short-term revenue extraction and support investment, exports and formalisation. It notes that Pakistan’s tax-to-GDP ratio stood at 11.1 per cent in FY25, while only around 7.2 million individuals filed income tax returns.

For ordinary taxpayers, possible relief for the salaried class will be closely watched.

AHL says proposals under discussion include lower income tax rates for salaried individuals, while PRAC has recommended increasing the tax-free income threshold, indexing slabs to inflation and reducing the maximum marginal rate.

Speaking to Wealth Pakistan, Dr Ali Salman, Chief Executive Officer of the Policy Research Institute of Market Economy (PRIME), said Pakistan needed lower and more uniform tax rates instead of sector-specific preferences.

“The most effective tax strategy would be a broad-based reduction in income and sales tax rates without sector-specific preferences,” he said, adding that such a structure would encourage investment, business expansion and voluntary compliance while reducing distortions created by exemptions.

On expenditure, Dr Salman said IMF inflation projections of around 8.4 per cent created room for gradual interest-rate reduction, provided real returns remained positive. He also said social protection spending should be shifted fully to provinces, allowing the federal government to focus on fiscal discipline. “Budget alone can never fix economic ills,” he said, calling for structural reforms and business facilitation.

Similarly, Mohammed Waqas Ghani, Head of Research at JS Global Capital Ltd, said expectations of major relief should remain cautious because revenue collection was weak and economic activity would take time to recover.

“It is going to be very difficult to meet the revenue target of Rs15.27 trillion next year,” he said, adding that tax collection would need to grow by around 20-25 per cent year-on-year to achieve the target. He said some rationalisation in salary tax was possible, but major changes were unlikely.

The challenge is to raise more revenue without further burdening formal activity. PRAC has proposed bringing agriculture, real estate and informal retail into the documented economy through Point-of-Sale enforcement, CNIC-linked data integration and provincial agriculture income tax reforms.

Exporters may also see important changes. PRAC notes that shifting exporters from the Final Tax Regime to the Normal Tax Regime has increased upfront tax and compliance burdens. It proposes restoring the option for exporters to choose between the two regimes, while Mr Ghani, the head of research at JS Global Capital, adds that abolition of the 1 per cent advance tax for exporters would be a positive move.

The sectoral impact is expected to vary. AHL’s preview points to support for housing and construction through revival of housing finance schemes, while Ghani notes that lower withholding tax, capital gains tax and property valuations could support real estate activity and benefit cement, steel and paint sectors.

Ghani also warns that higher taxes on electric and hybrid vehicles could hurt the auto sector, while taxes on solar panels would be negative. Health and education allocations may rise modestly because fiscal space is restricted.

The budget may be judged less by the volume of relief it announces and more by whether it broadens the tax base, protects documented taxpayers and restores business confidence without weakening fiscal discipline.

Credit: INP-WealthPk