Pakistan's FY2026-27 Federal Budget combines tax base expansion, digitalisation and revenue administration reforms with higher social spending as the government seeks to maintain macroeconomic stability and keep its IMF-supported programme on track.
Pakistan’s government presented its Federal Budget for FY2026-27 on 12 June 2026, targeting PKR 20.6 trillion in revenue through higher tax collections, tax administration reforms and broader economic documentation as it seeks to maintain macroeconomic stability and remain on track with its IMF-supported programme.
The budget projects PKR 15.26 trillion in Federal Board of Revenue (FBR) tax collections, comprising PKR 7.61 trillion in direct taxes and PKR 7.65 trillion in indirect taxes. Non-tax revenue is estimated at PKR 5.34 trillion, including PKR 1.68 trillion from the Petroleum Levy and PKR 50 billion from the newly introduced Climate Support Levy.
Tax reforms and revenue measures
The government’s tax strategy focuses on broadening the tax base, reducing exemptions and accelerating digitalisation of tax administration. Tax expenditures arising from exemptions and concessions were estimated at PKR 2.35 trillion in the previous year, prompting efforts to rationalise relief measures and improve compliance.
Among relief measures, salaried individuals will benefit from revised income tax slabs, with the threshold for the highest 35% tax rate raised from PKR 4.1 million to PKR 7 million.
The budget also abolishes tax on deemed income from immovable property under Section 7E, reduces advance tax on property purchases to 1.25% and lowers tax on property sales or transfers to 2.75%.
The government has abolished Super Tax for taxpayers with income up to PKR 500 million and reduced the rate from 10% to 8% for higher-income taxpayers, excluding the banking, exploration and production, and fertiliser sectors.
Export-related taxes have also been eased. Tax collection on export proceeds has been reduced from 2% to 1.25%, while the preferential 0.25% tax rate for IT and IT-enabled services exports has been extended until tax year 2029.
Withholding tax on international debit, credit and prepaid card transactions has been cut from 5% to 0.5%.
New measures include a 5% withholding tax on social media earnings from platforms such as YouTube, Facebook, Instagram and TikTok, to be collected by banks and financial institutions.
A tax credit equal to 10% of investment in electronic systems linked to the FBR’s digital platform has also been introduced.
GST and excise duty changes
Several consumer goods will move to retail-price-based sales tax collection, with GST charged at the manufacturer or import stage on the printed retail price. Products affected include milk products, edible oils, jams, ketchup, footwear, crockery, sanitaryware, hair products and plastic household goods.
The budget removes Federal Excise Duty on tampons, while increasing the duty on e-cigarette liquids from PKR 10,000 to PKR 16,500 per kg.
Imported vehicles above 2,000cc engine displacement, luxury imported vehicles and luxury electric vehicles will face Federal Excise Duty rates ranging from 40% to 41%. Token tax on motor vehicles in Islamabad Capital Territory has also been increased.
Social spending and development priorities
The government has increased funding for the Benazir Income Support Programme (BISP) to PKR 844.8 billion. An additional PKR 1 billion has been allocated for free medicines in federal government hospitals, while grants to the Higher Education Commission have been enhanced to support higher education and research.
The federal Public Sector Development Programme (PSDP) has been set at PKR 1 trillion, up 22% from the previous year, while combined federal and provincial development spending is projected at PKR 3.7 trillion.
Climate-related initiatives feature prominently in the budget. The government expects to raise PKR 50 billion through the Climate Support Levy and has allocated nearly PKR 5 billion to the Ministry of Climate Change and Environmental Coordination, including PKR 2.48 billion for development projects. Around 94% of the ministry’s development budget is earmarked for the Green Pakistan Programme.
Defence and fiscal management
Defence Affairs and Services spending has been allocated PKR 3.01 trillion, up from the revised estimate of PKR 2.60 trillion for FY2025-26. The allocation includes spending on personnel, operations, physical assets and civil works, while defence-related non-tax revenue is projected at PKR 31.47 billion.
The budget also outlines fiscal risk management measures, including protection of the primary surplus, reforms of state-owned enterprises through performance-based contracts, accelerated privatisation and debt management initiatives aimed at extending maturities and reducing debt-servicing costs.
Additional initiatives include the introduction of AI-enabled climate budgeting, new Sarwa Islamic Saving and Term Accounts under National Savings Schemes, and the establishment of the Prime Minister’s Austerity Fund 2026 to support expenditure rationalisation. Climate-responsive allocations account for 11% of development spending, while gender-responsive allocations represent 9% of current expenditure.
