Federal Budget 2025-26: Key Highlights and Implications for Government Employees and the Common Man
The Government of Pakistan has unveiled the Federal Budget for the fiscal year 2025–26, with a total outlay of Rs 17,600 billion. The budget focuses on balancing economic recovery, inflation management, and providing limited relief to the salaried class. It introduces several important decisions related to salaries, pensions, taxation, defense, energy reforms, and housing.
Below is a detailed breakdown of the major announcements and what they mean for government employees and ordinary citizens.
Salary Increases for Government Employees
The Pakistan Federal Budget 2025–26 has officially been announced and presented with a total outlay of Rs 17,600 billion. The federal budget 2025-26 announcement date was followed by a detailed presentation in the National Assembly. The government has emphasized economic reforms, modest relief for the salaried class, and new strategies to enhance tax compliance. The economic team, led by the Prime Minister, has approved a 10% increase in salaries for federal government employees and a 7% raise in pensions for retired personnel. These recommendations await final approval from the federal cabinet.
Federal Budget 2025-26 Presentation Date and Highlights
The federal budget 2025-26 presentation date was set for June 10, 2025, during which the Finance Minister shared detailed proposals for fiscal management, tax policy, and public sector compensation. The budget outlines plans to balance inflation control with development spending and defense allocations.
Proposals Considered:
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30% Disparity Allowance for employees in Grade 1 to 16.
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10% Inflation-Indexed Salary Increase for all employees.
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Merger of One Ad Hoc Relief Allowance into the basic salary.
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Separate 15% Salary Increase for officers in Grade 17 to 22.
Pension Reforms:
While the contributory pension scheme was to be implemented from July 1 for the armed forces, sources suggest its rollout may be delayed due to incomplete structuring. As a result, the armed forces are expected to remain exempt for now.
Income Tax Reforms: Some Relief for the Salaried Class
The Finance Minister has introduced modest income tax relief for the salaried class:
| Annual Income (PKR) | Previous Tax Rate | New Tax Rate |
|---|---|---|
| 600,000 – 1,200,000 | 5% | 1% |
| Up to 2,200,000 | 15% | 11% |
| 2,200,000 – 3,200,000 | 25% | 23% |
For example, an individual earning Rs 1.2 million annually will now pay Rs 6,000 in income tax instead of Rs 30,000.
Increased Tax on Savings Income
While salaried individuals received some relief, those earning through bank savings will now face a higher tax burden:
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Tax on interest income increased from 15% to 20%.
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For instance, on profit of Rs 100,000, tax deducted will now be Rs 20,000 instead of Rs 15,000.
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This does not apply to small savers or National Savings Schemes.
Measures Against Non-Filers and Tax Evaders
The government is intensifying efforts to expand the tax net:
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Only filers will be allowed to purchase vehicles, property, stocks, or mutual funds.
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Cash withdrawal tax on non-filers increased from 0.6% to 1%.
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Individuals must now declare income sources (gifts, loans, inheritance) via the FBR portal.
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Honest taxpayers will benefit from simplified return filing and transaction approvals.
Carbon Levy and Energy Sector Changes
A carbon levy has been proposed to encourage environmentally sustainable fuel use:
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Levy on petrol, high-speed diesel, and furnace oil:
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Rs 2.5 per liter initially
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Increasing to Rs 5 per liter next year
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Sales tax on all petrol/diesel vehicles, including hybrids, increased to 18%.
Automotive Sector Impact: Higher Vehicle Prices
The increase in sales tax will raise car prices significantly:
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Hybrid vehicles up to 1800cc:
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Tax increased from 8.5% to 18%
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Small vehicles (under 850cc) like Suzuki Alto:
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Sales tax increased from 12.5% to 18%
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Estimated price increase: up to Rs 170,000
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Real Estate & Housing: Support for Middle-Class Buyers
To encourage home ownership and construction:
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Subsidized housing loans to be introduced for low-income groups.
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Tax credits on:
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Houses up to 10 marla
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Flats up to 2,000 sq. ft.
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Withholding tax on property purchase reduced:
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From 4% to 2.5%
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From 3.5% to 2%
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From 3% to 1.5%
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Stamp duty in Islamabad proposed to be reduced from 4% to 1%
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Federal excise duty (up to 7%) on commercial property transfer abolished
Solar Panel Imports Now Costlier
To protect local solar panel manufacturers:
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Sales tax on imported solar panels raised to 18%
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Previously at 17%
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Government claims future plans aim to reduce electricity prices:
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Expensive power plants of 9,000 MW capacity have been shelved
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Savings of Rs 4 trillion estimated
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Conclusion: Limited Relief, Strategic Shifts
The Federal Budget 2025–26 offers partial relief to salaried individuals and some incentives for housing and energy reforms, while also introducing stricter compliance measures for non-filers. Compared to the federal budget 2024-25, the current budget places greater emphasis on tax enforcement and economic restructuring. However, the common man may face increased costs due to higher taxes on savings, fuel, and vehicles.
The full impact will unfold as the budget is implemented, but it is clear that the government aims to balance fiscal discipline with targeted welfare and reforms.
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