Finance Minister Muhammad Aurangzeb unveiled a 18,771 billion rupee federal budget for the 2026-27 financial year on Friday, prioritizing economic growth through tax relief, salary increases, and infrastructure investment. The government projects a four percent GDP growth rate and an 8.2 percent average inflation rate, while allocating 3,000 billion rupees to defense spending.
How the budget impacts personal income and tax
The federal government has proposed a seven percent salary increase for government employees and pensioners, alongside a 10 percent hike in the minimum wage, according to Finance Minister Muhammad Aurangzeb. To provide relief to the salaried class, the government plans to reduce income tax rates across four specific slabs. For example, individuals earning between 2.2 million and 3.2 million rupees annually will see their tax rate drop from 23 percent to 20 percent. Additionally, the government intends to abolish the surcharge on the salaried class to further lower the tax burden.
What are the government’s spending priorities?
Defense remains the largest single expenditure category, with 3,000 billion rupees earmarked for the sector. Beyond security, the government has allocated 1,000 billion rupees for the federal Public Sector Development Programme (PSDP). According to the budget documents, 60 percent of this development fund is focused on transport, communication, water resources, and energy. Notable infrastructure projects include 100 billion rupees for the N-25 highway connecting Karachi to Chaman and 30 billion rupees for the M-6 Sukkur-Hyderabad Motorway. Furthermore, 838 billion rupees are proposed for the Benazir Income Support Programme (BISP), with plans to expand the Kafaalat program to 12 million families.
How does the budget change business and trade taxes?
The government is shifting its tax strategy for businesses and the IT sector to encourage growth. Finance Minister Muhammad Aurangzeb announced the withdrawal of super taxes on businesses earning between 150 million and 500 million rupees, while reducing the rate for higher earners from 10 percent to 8 percent. The IT export concession, previously set to expire, is proposed for a three-year extension until June 30, 2029. Additionally, small retailers with annual sales under 200 million rupees may opt into a new fixed tax system, paying one percent on annual sales, which the government hopes will simplify compliance and increase documentation.
What happens next for the budget?
The legislative process for the 2026-27 budget is now underway following the formal presentation of the Finance Bill, 2026, in the National Assembly and the Senate. The National Assembly is scheduled to reconvene Saturday at 11:00 a.m. to continue deliberations, while the Senate will meet on Monday at 12:30 p.m. Following these parliamentary debates, the proposed tax adjustments and spending allocations may be subject to further revisions before final approval. If passed, these measures will take effect in the upcoming fiscal year, with the new automated FBR tax system likely to be implemented to reduce direct interaction between taxpayers and officials.