ISLAMABAD: Finance Minister Muhammad Aurangzeb on Wednesday stated that if parliament does not approve the proposed legislation regarding taxes, including a ban on economic transactions, additional taxation measures worth Rs400-500 billion would become necessary.
During the post-budget press conference, the minister hinted at introducing a mini-budget for the fiscal year 2025-26, noting that all budgetary figures had been “locked with the IMF.” He emphasized that this was the first time the International Monetary Fund (IMF) staff had accepted generating Rs400 billion through enforcement measures.
Responding to a question about the federal cabinet’s rejection of a proposed reduction in the income tax slab—from five percent to one percent for incomes between Rs0.6 million and Rs1.2 million—and its subsequent increase to 2.5 percent, the minister said work on the matter was still in progress. Finance Secretary Imdadullah Bosal added that the cabinet’s decision to raise public sector employees’ salaries by 6 percent to 10 percent would cost Rs29 to Rs30 billion.
Muhammad Aurangzeb said, “We face pressure, and it is a valid question—why are government expenditures not being reduced when taxes are being increased? This is a legitimate concern. This time, government expenditures have increased by only 1.9 percent, and credit for this goes to the finance secretary.” He added, “The salaried class, which pays taxes, has often raised objections, asking why federal government expenditures are not being controlled. Our response to them is that the increase in government spending has been kept below two percent. While other issues remain, the provision of relief is determined by the financial space. Even now, whatever the federal government is providing is being done through borrowed funds, because we started with a deficit.”
At the start of the post-budget press conference journalists staged a walkout. They informed the finance minister that for the past two decades, it had been customary for the FBR to hold a technical press briefing immediately after the budget speech. This time, however, despite the presentation of one of the lengthiest Finance Bills—spanning 355 pages—no such briefing was arranged. Information Minister Attaullah Tarar and PIO Mubasher Hassan arrived at the P Block nearly half an hour later and persuaded the agitated journalists to end their boycott.
The government clarified that the 10 percent salary increase would be provided as an ad-hoc allowance on running basic pay. A Disparity Allowance was also introduced for Grade 1 to 16 employees to address pay gaps, which had reached 70 percent compared to certain departments with higher salaries.
On expenditure rationalisation, the finance secretary stated that cuts had been made wherever possible, leaving no further room for reductions. Regarding the impact of the government’s right-sizing initiative, he noted that the effects would become visible over time as vacant positions were abolished and left unfilled.
The finance minister confirmed that Pakistan would repay two installments of outstanding international bonds in the next fiscal year. Two major Eurobond repayments are due: a $500 million bond issued in 2015 at 8.25 percent (maturing in September 2025) and a $1 billion bond issued in April 2021 at 6 percent (maturing in April 2026). He also mentioned plans to launch a Panda bond and explore the possibility of issuing Eurobonds in 2026.
Federal Board of Revenue (FBR) Chairman Rashid Mehmood Langrial explained that the tax on digital platforms was imposed after retailers raised concerns about their businesses being undermined by the growing e-commerce sector. The FBR chairman noted that over Rs100 billion in sales had been reported through digital invoicing, requiring stricter enforcement under the self-assessment scheme. The All Pakistan Retail Association had complained to the FBR that documented businesses were at a disadvantage, paying 18 percent GST compared to the informal sector, pushing them toward collapse. The Finance Bill 2025-26 aimed to restore a level playing field. A two percent tax on the gross value of supplies would apply to sellers delivering digitally ordered goods within Pakistan via online marketplaces, websites, or software applications. The FBR chairman stated that all taxable activities involving digitally ordered goods had been incorporated into the e-commerce sales tax framework. Currently, online marketplaces must withhold one percent sales tax on local supplies by non-active taxpayer vendors. Under the Finance Bill 2025, for digitally ordered goods supplied within Pakistan via e-commerce platforms, the responsibility to collect and remit tax would fall on payment intermediaries—such as banks, financial institutions, licensed exchange companies, or payment gateways—for digital payments, and on couriers for Cash on Delivery (CoD) transactions, as per the Eleventh Schedule rates. Defending the newly imposed 18 percent GST on imported solar panels, FBR Chairman Rashid Langrial said, “On the local panels assemblers there was 16 to 18 percent tax, while the imports were tax-free, so it was imposed to remove the anomalies and disadvantages for local assemblers.”
A simplified tax payment system was introduced for couriers and banks, ensuring final tax liability discharge. Additionally, non-profit organisations (NPOs) will face stricter scrutiny under the Finance Bill 2025-26. The FBR has imposed stringent conditions for NPOs seeking tax exemptions, requiring proof of non-engagement in commercial activities. Future reviews will assess NPO performance and compliance.
During the presser, the finance minister disowned the very proposal he announced a day earlier in his budget speech—imposing a 10 percent surcharge on electricity bills—despite Pakistan having already assured the IMF that it would implement the levy to manage circular debt repayments. There is no such plan, the minister declared when asked if the surcharge would be enforced.
During the briefing, Aurangzeb also confirmed the government has finalised Rs1.3 trillion in bank borrowing to retire power sector debt. “That surcharge was of the Power Division and a DSS was levied. The government wants to convert the costly credit into cheap credit to finance the circular debt and its retirement,” he told reporters. He said recoveries in the power sector had improved, although “transmission losses are still to move in the right direction.” Due to these gains, power sector subsidies will be trimmed to Rs1.036 trillion in FY26, down from Rs1.19 trillion—saving Rs154 billion.
Yet, the IMF’s staff report, issued May 17, states that Pakistan committed to adopt legislation by June 2025 to remove the DSS cap and finance Rs1.252 trillion in new loans through DSS revenues over six years. This would repay Rs683 billion in PHL loans and Rs569 billion in arrears to producers. If DSS revenue falls short, it will be increased to meet payment targets. The federal government has eliminated additional Customs duties on 4,000 out of 7,000 total tariff lines, and reduced duties on a further 2,700, the finance minister announced. He described the tariff rationalisation as a “major and important step” in aligning Pakistan’s trade and industrial policy with global standards. The initiative, he said, marks the beginning of a phased plan to transition towards a simplified tariff regime, ultimately targeting more than four percent reduction in tariff regime in Pakistan. “Overall, there are 7,000 tariff lines. Additional Customs duty has been removed on 4,000 lines, and reduced customs duty on 2,700 tariff lines,” the finance minister explained. “Of these, around 2,000 tariff lines are directly linked to raw materials and intermediary goods used by exporters.”
Aurangzeb emphasized that the reduction in input costs for exporters would help improve competitiveness in international markets, a critical requirement as the country seeks to boost its export base and narrow trade deficit. This is a structural reform that hasn’t been undertaken in the past 30 years, he said. “From a reform perspective, this is a huge step, and we’re committed to taking it forward gradually.”
The government’s broader goal, according to Aurangzeb, is to reshape Pakistan’s tariff architecture in a way that supports industrial growth and integrates the economy more deeply into global supply chains. The minister said tariff reforms were more than a fiscal measure, they mark a fundamental shift in Pakistan’s economic model, aimed at dismantling long-standing protectionist regime and laying foundation for sustainable export-led growth.
“This is not just about reducing duties, it’s about transforming the overall macroeconomic framework,” he stated, adding, this sets the direction of travel.
The reforms are designed to gradually replace import substitution with export promotion for addressing Pakistan’s recurring balance of payments crises and dollar liquidity pressures. “If we want to structurally reposition the country toward export-led growth, we need to change the very DNA of the economy,” Aurangzeb said. “That’s how we avoid falling into the same cycle of dollar shortages every time we try to grow.”
The minister, touched on broader fiscal measures aimed at ensuring equity and sustainability, particularly for salaried individuals and mid-sized businesses. He noted that the government has offered as much relief as possible to the salaried class within constraints of available fiscal space. “Different slabs, including at the highest levels, have been carefully considered. From both, my perspective and the prime minister’s, we provided as much relief as the fiscal space allows.”
He also pointed to the phased reduction of super tax on mid-sized corporations as part of the government’s commitment to improving the business climate. “Even if it’s just a 0.5 percent reduction, it sends an important signal to the market,” he added.
Aurangzeb said the government announced a series of targeted reforms in the construction and agriculture sectors, aimed at reducing transaction costs, supporting affordable housing and ensuring credit access for small farmers. Addressing recent concerns around construction-related taxes, the minister clarified that while overall tax liability has not been reduced, the government restructured system to lower transaction costs, particularly for buyers.
To promote home-ownership, the government is also prioritizing access to mortgage financing. “As important as the fiscal side is, access to credit is equally critical,” the minister said. He revealed that in collaboration with the State Bank of Pakistan, the government is preparing to launch a new housing finance scheme to enable individuals to build homes through accessible credit. On the agriculture front, Aurangzeb described the sector as critical for economic growth. He clarified that additional taxes on fertilizer and pesticide were to be implemented last June, however, the government negotiated with the IMF and got it delayed it till this year. The minister said strengthened enforcement mechanisms have helped the federal government generate over Rs400 billion in additional revenues this fiscal year. He noted that while international stakeholders had previously doubted Pakistan’s ability to implement tax laws effectively, the government has now demonstrated that meaningful enforcement is possible. He said the tax-to-GDP ratio was projected to reach 10.4 percent this year and to 10.9 percent in FY2025-26. As part of the broader reform agenda, the government is preparing to move forward with a legislative push, engaging both houses of parliament to introduce amendments, aimed at strengthening tax enforcement. Aurangzeb emphasized that legal backing would be critical to institutionalising compliance and sustaining revenue growth.
To a question, the minister said the increases in salaries and pensions were directly linked to the headline inflation, Consumer Price Index (CPI), ensuring adjustments reflect inflationary pressures. He reaffirmed the government’s commitment to agriculture as the central engine of economic growth, with a particular focus on dairy and livestock, which account for 60 percent of the sector’s GDP. He said that greater federal policy coordination is needed on devolved subjects like seed technology, mechanisation and agri-financing.
On the fiscal front, he reported a modest 1.9 percent rise in government expenditure, crediting prudent financial management. He said despite inflation at 7.5 percent, the government managed to contain subsidies and reduce debt servicing, while selectively increasing spending where necessary for national priorities. In a bid to bring Pakistan’s vast informal economy into the tax net, the federal government is moving decisively to document the estimated over Rs9.4 trillion cash economy through digitalisation and targeted regulatory reforms. Responding to a question, Aurangzeb stated that the government was fully committed to transitioning towards a digital economy. “We are taking concrete steps to reduce reliance on cash and promote a formalised, technology-driven ecosystem,” he said. In response to a question, the finance minister said that the government has imposed 18 percent General Sales Tax on import of solar power panels as part of its strategy to support and incentivise local solar panel manufacturing.
