• The Government of Pakistan has proposed a PKR17.57 trillion Budget for FY26, which is 2% higher than the revised Budget for FY25.
• The Gov’t is targeting an overall fiscal deficit of 3.9% of GDP and a primary surplus of 2.4% of GDP, compared with the projected fiscal deficit of 5.6% and primary surplus of 2.2% for FY25. The government is targeting to grow FBR’s tax revenues by 19% YoY to PKR14.1tn and maintain total expenditures at PKR 16.3 trillion.

Among the key revenue measures are:

• Withholding tax on non-filers on cash withdrawal from banks of over PKR50,000 will be increased from 0.6% to 0.8%.
• A carbon levy of PKR2.50/liter will be imposed on petroleum products, which will increase to PKR5.0/liter in FY27.
• Uniform GST of 18% on cars of under 850cc engine, from 12.5% presently.
• A 2.5% withholding tax on cigarette distributors.
• Phase-wise removal of sales tax exemption for goods produced in the FATA/PATA region—from 10% in FY26 to 16% in FY29.
• Tax rate on profit on debt paid by a bank or financial institution to be increased from 15% to 20%.
• Dividend received from mutual funds deriving income from investments in both equity and debt securities be taxed at the rate of 15% and 25%, respectively, contingent upon proportionate income derived from average annual investment in debt and equity securities, respectively.
• EV Adaptation levy of 1% on cars below 1,300cc, 2% on cars between 1,300-1,800cc and 3% for cars above 1,800cc.

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KEY REVENUE MEASURES

Tax Revenues (PKR billion)

	FY25B	FY25R	Deviation	FY26B	YoY
FBR Taxes (I+II)	12,970	11,900	-8%	14,131	19%
I. Direct Taxes	5,512	5,826	6%	6,902	18%
– Income Tax	5,454	5,749	5%	6,811	18%
– Others	58	77	32%	91	18%
II. Indirect Taxes	7,458	6,074	-19%	7,229	19%
– Customs Duties	1,591	1,316	-17%	1,588	21%
– Sales Tax	4,919	3,984	-19%	4,753	19%
– Federal Excise Duty	948	774	-18%	888	15%

Non-Tax Revenues (PKR billion)

	FY25B	FY25R	Deviation	FY26B	YoY
SBP Profit	2,500	2,620	5%	2,400	-8%
Petroleum Levy	1,281	1,161	-9%	1,468	26%
Dividends	139	198	43%	206	4%
Mark up	294	245	-17%	284	16%
Others	631	678	7%	789	16%
Total	4,845	4,902	1%	5,147	5%

Gross Revenues: 17,815 (FY25B) → 16,802 (FY25R) → 19,278 (FY26B) | YoY: 15%

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EXPENDITURES

Relief measures include:

• Super tax proposed to be reduced by 0.5% for income slabs between PKR 200-500 million.
• Reduction of income tax rate for salaried individuals earning up to PKR 3.2 million annually. Similarly, the surcharge rate on income above PKR 10 million will be reduced by 1% from 10% to 9%.
• Proportionate tax credit on profit on debt obtained for construction or acquisition of a house of 250 sq. yd. and a flat having 2000 sq. ft. or less area.
• Withholding tax on purchase of property to be lowered from 4.0% to 2.5%, 3.5% to 2.0%, and 3.0% to 1.5%.
• The government will abolish the 7% federal excise duty (FED) on the transfer of commercial properties, plots and houses.

On the Expenditure side:

• The government envisions a 9% YoY decline in domestic debt servicing in FY26, thanks to sharp monetary easing during FY25.
• Defense budget is targeted to increase by 17% YoY, while the government plans to curtail subsidies by 14% YoY.
• The government has allocated PKR 1.0 trillion for Federal PSDP, similar to last year’s allocation. About 30% of this allocation will be used for transport infrastructure projects.

Expenditure (PKR billion)

	FY25B	FY25R	Deviation	FY26B	YoY
Current Expenditure	17,203	16,390	-5%	16,286	-1%
– Domestic Interest Pay.	8,736	7,907	-9%	7,197	-9%
– Foreign Interest Pay.	1,039	1,039	0%	1,009	-3%
– Pension	1,014	1,014	0%	1,055	4%
– Defence	2,122	2,181	3%	2,550	17%
– Subsidies	1,363	1,378	1%	1,186	-14%
– Emergency Provision	313	223	-29%	389	74%
– Civil Govt Running	839	886	6%	971	10%
Development Expenditure	1,100	659	-40%	1,400	112%
– Federal PSDP	1,100	1,100	0%	1,000	-9%
– Provincial PSDP	2,383	2,383	0%	2,869	20%
Total	18,877	17,249	-9%	17,573	2%
Fiscal Deficit	-8,500	-7,444	2%	-6,501	-13%
GDP	124,150	114,692	-8%	129,567	13%
Fed. Budget Def. % GDP	-6.8%	-6.5%		-5.0%
Overall Fiscal Def. %GDP	-5.9%	-5.6%		-3.9%
Primary Surplus % GDP	2.0%	2.2%		2.4%

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KEY MACRO INDICATORS

Indicator	FY24A	FY25P	FY26B	FY26 Comments
GDP growth YoY	2.51%	2.68%	4.20%	Broad-based growth expected due to low interest, stable inflation, and pro-agriculture/export policy.
Agriculture YoY	6.40%	0.56%	4.50%	Supported by collateral-free loans, less imported cotton, improved water access.
Industry YoY	-1.37%	4.77%	4.30%	Positive momentum from LSM and construction revival.
Services YoY	2.19%	2.91%	4.00%	Will benefit from growing consumption and commodity-based retail.
Inflation Avg.	23.87%	5.00%	7.50%	CPI to stay in single digits due to stable exchange rate, food prices and oil.
Fiscal deficit % GDP	6.90%	5.60%	3.90%	Lowest in over a decade, due to expanded tax net and lower debt servicing.
Primary surplus % GDP	0.90%	2.20%	2.40%	Third straight surplus year showing macro stability.
CA balance % GDP	-0.6%	0.5%	-0.5%	Strong remittances and controlled imports to support it.
Exchange rate (EoY)	278.34	282.20	295.00	Supported by IMF programs, Panda bond, and privatization.

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POSITIVE OUTLOOK FOR THE STOCK MARKET

• FY26 Budget is broadly positive for the equity market. No CGT or dividend tax hikes.
• Moderate relief in salaried tax and super tax will boost investor confidence.
• Higher tax on debt returns may shift capital to equities, supporting market liquidity and rerating.
• PE multiple of 6.5x still below historic average of 7.5x.
• Positive or neutral impacts across major PSX sectors.
• Beneficiaries: Cement, Pharmaceuticals, Fertilizer, Energy.
• Restrictions on non-filers may impact Banks and Autos short term.
• Efforts to formalize the economy will aid long-term corporate profitability.

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