Defense Budget Increased by 20%, Salaries by 10%, Pensions by 7%, Income Tax Slashed

Islamabad – The federal government has presented a Rs. 17,600 billion budget for the fiscal year 2025–26, introducing significant changes in defense spending, salaries, pensions, tax slabs, and development allocations.

Key Allocations and Spending

• Defense Budget: A 20% increase in the defense budget has been announced, raising the allocation to Rs. 2,550 billion.

• Salaries and Pensions: Government employees will receive a 10% salary increase, while pensions are raised by 7%. Additionally, eligible employees will receive a 30% Disparity Reduction Allowance.

• Debt Servicing: Rs. 8,207 billion has been allocated for interest payments on national debt.

• Civil Administration: Rs. 971 billion allocated for civil administrative expenses.

• Pensions: Rs. 1,055 billion has been earmarked for pension payments.

• Subsidies: Rs. 1,186 billion for electricity and other sectoral subsidies.

• Federal PSDP: The Public Sector Development Programme (PSDP) has been allocated Rs. 1,000 billion, while provincial ADPs will receive Rs. 2,869 billion.

• Benazir Income Support Programme (BISP): Allocation increased to Rs. 716 billion.

Defense and Special Allowances

The budget includes the announcement of a Special Relief Allowance for armed forces personnel. Disabled employees will now receive a Special Conveyance Allowance of Rs. 6,000 per month, up from Rs. 4,000.

Tax Relief for Salaried Class

A major relief has been provided to salaried individuals through revised income tax slabs:

• Income up to Rs. 1.2 million annually: Tax reduced to 1% (down from 5%).

• Income up to Rs. 2.2 million: Tax reduced from 15% to 11%.

• Income between Rs. 2.2 million and Rs. 3.2 million: Tax reduced from 25% to 23%.

For example, an individual earning Rs. 1.2 million annually will now pay Rs. 6,000 in tax instead of Rs. 30,000.

Corporate and Property Tax Reforms

• Super Tax: Reduced by 0.5% for businesses earning between Rs. 200 million and Rs. 500 million.

• Withholding Tax on Property Purchase: Reduced across all slabs. For example, the top slab now has a 1.5% rate instead of 3%.

• Capital Value Tax (CVT) & FED: Federal Excise Duty on transfer of commercial properties, plots, and houses has been removed.

• Stamp Duty in Islamabad: Reduced from 4% to 1% on property purchases.

Online and General Sales Tax

• A flat 18% General Sales Tax (GST) will apply to all vehicles.

• Imported solar panels may also be subjected to an 18% GST.

• Online purchases via e-commerce platforms will incur 18% GST.

FAATA and PATA Tax Exemptions Ended

The government has withdrawn tax exemptions for FAATA and PATA regions. Sales tax will now be applied in phases, starting at 10%.

Sector-Specific Allocations

• Armed Forces: Rs. 11.55 billion for the Defense Division.

• Higher Education Commission (HEC): Rs. 39.48 billion.

• National Highway Authority: Rs. 226.98 billion.

• Water Resources Division: Rs. 133.42 billion.

• Power Division: Rs. 90.22 billion.

• Youth Skill Development Programme: Rs. 4.3 billion.

• Flood-Affected School Reconstruction: Rs. 3 billion.

• Cancer Hospital in Islamabad: Rs. 1.7 billion.

• Dam Projects: Rs. 32.7 billion for Diamer-Bhasha Dam, Rs. 35.7 billion for Mohmand Dam, and Rs. 5 billion for other dams in Balochistan.

• Karachi Water Project (K-IV): Rs. 3.2 billion.

Growth Targets for FY 2025–26

• GDP Growth: Targeted at 4.2%.

• Inflation: Targeted at 7.5%.

• Exports: $35.3 billion.

• Remittances: $39.4 billion.

• Current Account Deficit: Estimated at -0.5% of GDP (around $2.1 billion).

• National Savings: Targeted at 14.3% of GDP.

• Investment-to-GDP Ratio: Targeted at 14.7%.

Sectoral Growth Targets

• Agriculture: Key crops (6.7%), other crops (3.5%), livestock (4.2%), forests (3.5%), fishing (3%).

• Manufacturing: Overall (4.7%), large-scale (3.5%), small-scale (8.9%), slaughtering (4.3%).

• Construction: 3.8%.

• Services: 4.0%.

• Wholesale/Retail Trade: 3.9%.

• Transport & Communication: 3.4%.

• Information & Communication: 5%.

• Financial & Insurance Services: 5%.

Additional Revenue Measures

• Petroleum Carbon Levy: A levy of Rs. 2.5 per liter will be imposed on petrol, HSD, and furnace oil.

• Levy Income Target: Rs. 29.79 billion.

• 4G License Fees: Estimated income of Rs. 22 billion.

• Tax Revenue Goals:

  • Customs Duty: Rs. 1,588 billion.

  • Sales Tax: Rs. 4,753 billion.

  • FED: Rs. 888 billion.

  • Property Tax: Rs. 519 billion.

    Read more: Budget 2025-26: Details of salaried income tax slabs announced