Federal Finance Minister Muhammad Aurangzeb on Wednesday defended the government's limited relief to the salaried class in the newly unveiled budget for fiscal year 2025-26.
Addressing a post-budget press conference in Islamabad, the finance minister said that while he and Prime Minister Shehbaz Sharif were keen to provide maximum relief to the salaried class, “we can only go further according to our capacity.”
Finance Minister has warned that if tax laws are not effectively implemented, the government may be compelled to impose up to Rs500 billion in additional taxes. He emphasized that enforcing existing tax regulations is crucial to avoid placing further financial burden on the public.
Aurangzeb acknowledged the increasing burden on the salaried class and said it had been divided into income slabs, with heavier taxes on higher earners. “We must walk within our financial limits. The direction has been set — it is towards relief — but the pace depends on capacity,” he said.
Export-led reforms, customs duty cuts
Outlining the government's economic vision, the finance minister said that the budget focuses on bolstering an export-oriented economy. He revealed that customs duties had been completely abolished on more than 4,000 out of 7,000 tariff lines, while a further 2,700 tariff lines saw reduced duties — 2,000 of which were directly linked to raw materials.
“These reforms are unprecedented in the last 30 years,” Aurangzeb said. “They aim to improve industrial competitiveness, reduce the cost of doing business, and boost exports.”
The government, he added, plans to reduce the overall tariff structure by four per cent in the coming years. “This is a key part of our structural reform agenda,” he said.
Transaction cost, super tax and pension reforms
The finance minister announced a phased reduction in super tax on mid-sized corporates, terming even a 0.5pc cut “an important indication” of the government’s intent to spur business activity. Additionally, efforts were underway to reduce transaction costs, particularly in the real estate and construction sectors.
“In the construction sector, a seller earns a profit, but our priority is that the buyer should also benefit,” he explained. In line with this objective, the federal excise duty has been abolished on certain items.
Aurangzeb also announced changes to the pension system, stating it would now be linked to a Contributory Based Index (CBI) to ensure long-term sustainability. “Worldwide, pensions and salaries are adjusted with inflation. We are adopting the same principle,” he noted.
He clarified that this year’s pension and salary increases were aligned with the decline in inflation, not arbitrary hikes.
Agriculture tax postponed amid IMF pressure
The minister revealed that the International Monetary Fund (IMF) had urged the government to impose taxes on the agriculture sector, including fertilizers and pesticides. However, following the Prime Minister’s intervention, the decision was deferred in the interest of protecting farmers.
“We had to convince the IMF not to impose agricultural tax this year. It was a structural benchmark, but we argued successfully to delay it,” he said.
He added that agriculture remained the backbone of the country’s economy and that the government was exploring policies to modernise and support small farmers, including easy access to credit.
Additional taxes a necessity, not a choice
Aurangzeb acknowledged that additional taxes imposed in the budget were driven by compulsion rather than preference, attributing the measures to the country's fragile fiscal state and credibility issues with international institutions.
“Last year, when we were negotiating with global bodies, they simply did not believe that Pakistan could enforce its tax laws. There were laws, but no implementation,” he said. “This year, however, we’ve demonstrated enforcement — tax collections have exceeded Rs400 billion.”
The minister said that the current year’s tax-to-GDP ratio stands at 10.3pc and is projected to increase to 10.9pc in the next fiscal year. Of the Rs22 trillion targeted in overall revenue, only Rs312 billion is expected from new taxes, with the remainder stemming from automatic growth and enforcement.
He emphasised the need for legal amendments to sustain this momentum. “If we cannot enforce taxes, we’ll be forced again to impose additional measures worth Rs400–500 billion,” he warned, urging both houses of Parliament to support reforms.
Ministerial salaries, austerity, and NFC award
In response to a question about the sudden increase in the salaries of ministers and parliamentarians, Aurangzeb clarified that ministerial salaries were last adjusted in 2016. “If they had increased by 5pc annually since then, the current hike wouldn’t have appeared sudden,” he said.
He stressed that the government was still following an austerity policy, citing only a two percent increase in federal expenditure this year. “The federal government is providing relief while operating under the burden of loans. Expenditure reduction is inevitable,” he said.
Aurangzeb also announced that a new National Finance Commission (NFC) Award would be convened in August to ensure transparent and equitable resource distribution among provinces. “All financial decisions are being taken in consultation with provincial governments,” he added.
Online vs. formal retail
Meanwhile, Chairman FBR and the Secretary Finance, who accompanied the finance minister, highlighted the government’s efforts to balance tax treatment between formal and online retail sectors.
“There is the same value addition in both sectors,” the FBR Chairman said. “The key difference is record-keeping — online sellers mostly operate without formal documentation.”
He warned that removing the 18pc sales tax would eliminate a level playing field and undermine efforts for transparency. “Whether you buy from a shop or online, the tax is borne by the consumer. We aim for an equal and transparent system.”
