Finance Minister Muhammad Aurangzeb on Friday presented the budget for fiscal year 2026-27 in the National Assembly, with an outlay of Rs. 18.771 trillion, with debt servicing continuing to consume the largest share of expenditures.
Ahead of the budget, in a post on X, Prime Minister Shehbaz Sharif said the budget for FY27 had been prepared with great diligence and sincerity, adding the welfare and prosperity of Pakistan’s great nation had been given “utmost priority.” In a subsequent address to the federal cabinet, he thanked all provinces for agreeing to cuts in their development budget to support the federation.
The presentation of the budget was delayed after ruling coalition partner Pakistan Peoples Party (PPP) announced a boycott of the initial budget session because its “mandate is being stolen” in Gilgit-Baltistan. However, the party said it would continue to support the government in the public interest and would have a token presence in the assembly. Following negotiations, however, this decision was reversed, and the party attended the budget speech.
In his presentation of the budget—to loud jeers from the opposition—the finance minister said the budget would have a total outlay of Rs. 18.8 trillion, of which Rs. 8,054 billion was earmarked for markup payments. He said the economy was expected to grow by 4%, with anticipated average inflation of 8.2%. The fiscal deficit, he said, would be 3.6% of GDP while the primary surplus would be 2%.
The government has estimated tax revenue of Rs. 15,264 billion for FY27, 17.6% higher than the outgoing year’s Rs. 12,983 billion. Provinces, he said, would contribute Rs. 8,848 billion to the federal revenue. He also addressed a revenue sharing agreement between the federal and provincial governments, describing it as “positive.” Under the mechanism, said Aurangzeb, the provinces and center would cooperate without any impact on the constitutional rights of provinces.
Of the estimated tax revenue of Rs. 15,264 billion, he said, Rs. 13,250 billion would be set aside for “distribution between the federal and provincial” governments. “This amount of Rs. 15,264 billion to Rs. 13,250 billion will be available by the provinces as grants under Article 164 of the Constitution to meet national strategic demands,” he said, adding the mechanism for this year would be “renewed along similar lines with provinces’ consultation for FY28 and FY29.” He thanked the provincial governments for “stepping up for the national cause.”
According to the minister, the federal non-tax revenue is budgeted at Rs. 5,336 billion and net federal revenue at Rs. 11,751 billion. He said Rs. 1,000 billion has been allocated for the federal Public Sector Development Program (PSDP), increasing to Rs. 1,451 billion after the inclusion of funds set aside for state-owned enterprises and public-private partnership.
The government has allocated Rs. 2,224 billion for provincial development schemes and Rs. 451 billion for investment by state-owned enterprises. “This distribution reflects the division of responsibilities under the 18th Amendment, under which provinces are largely responsible for the social sector and the federal government focuses on strategic projects,” said the minister.
Aurangzeb said Rs. 3,000 billion has been allocated for defense and Rs. 1,071 billion for civil administration expenditures, noting defense was the government’s topmost priority.
He said the federal government’s current expenditure was budgeted as Rs. 17,495 billion, with Rs. 1,169 billion was set aside for pension payments and Rs. 1,091 billion for subsidies in power and other sectors. The government has set aside Rs, 838 billionn for the Benazir Income Support Program.
The finance minister said the government was proposing a reduction in the income tax for four salaried slabs—from 23% to 20% for those earning Rs. 2.2-3.2 million annually; from 30% to 25% for those earning Rs. 3.2-4.1 million; from 35% to 29% for those earning Rs. 4.1-5.6 million; and from 35% to 32% for those earning Rs. 5.6-7 million. He said the surcharge on the salaried class would end, adding the super tax would be abolished for businesses earning between Rs. 150 million and Rs. 500 million annually and reduced from 10% to 8% for businesses whose income exceeds Rs. 500 million.
The government has also proposed abolishing the tax on sanitary pads and contraceptives.
Important Allocations
* Rs. 71 billion for the Prime Minister’s Apna Ghar Housing Scheme
* Rs. 25.1 billion for public health by the federal government
* Rs. 46 billion for higher education
* Rs. 26.3 billion for the education sector
Major Tax Measures
* For annual salaries between Rs. 2.2–3.2 million, income tax rate is being reduced from 23% to 20%.
* For annual salaries between Rs. 3.2–4.1 million, tax rate is being reduced from 30% to 25%.
* For annual salaries between Rs. 4.1–5.6 million, tax rate is being reduced from 35% to 29%.
* For annual salaries between Rs. 5.6–7.0 million, tax rate is being reduced from 35% to 32%.
* The surcharge on salaried individuals is being abolished.
* Relief in super tax has been announced.
* Super tax on companies earning profits between Rs. 150–500 million is being abolished.
* For companies earning above Rs. 500 million, super tax is being reduced from 10% to 8%.
* Concessional tax of 0.25% on I.T. exports will be retained.
* Withholding tax on international credit and debit card transactions is being reduced.
* Tax on foreign payments via credit/debit cards is being reduced from 5% to 0.5%.
* Capital gains tax on Pakistanis holding foreign assets is being abolished.
* A fixed tax regime under Section 99B is being introduced for small shopkeepers.
* Federal Excise Duty of Rs. 80 per litre is being imposed on white spirit and mineral turpentine to discourage substandard and counterfeit petroleum products.
* FED is being introduced on imported vehicles with engine capacity between 2000cc and 3000cc.
* FED is being imposed on imported electric vehicles valued above Rs. 20 million.
* Federal Excise Duty on business-class international travel is being abolished.
Year in review
At the outset of his speech, the finance minister thanked allies in the ruling coalition, including Bhutto-Zardari. He said the budget was being presented at a time when the world was listening to Pakistan and desired its friendship. “But this was not coincidental. It began when Pakistan gave a befitting response to India in May 2025,” he said.
“This success was a result of decades-long professional training and preparedness,” he said. “Today, the world praises Pakistan’s defense capabilities. This is the reason that many countries are in contact with Pakistan to include the fighter jets protecting our skies in their fleet,” he added.
Aurangzeb said the country’s defense sector had become a source of foreign exchange earnings. “It is proof that strong defense is not just important for the country’s sovereignty but could also contribute to economic progress,” he said. “This defense capability has reshaped our strategic partnerships not just in the region but in the world,” he said, referring to the Saudi-Pakistan defense pact.
The minister also elaborated on Pakistan’s efforts for peace between the U.S. and Iran. “Pakistan’s efforts are directed towards establishing long-term peace in the region through an agreement and restoring the transit of oil through the Strait of Hormuz,” he said, adding China fully supported these efforts.
“Pak-China relations are an important part of our foreign policy. China is Pakistan’s most important trading partner,” he said.
On oil prices, he said the U.S.-Israeli war on Iran had spiked petrol and diesel prices globally. However, he said, local prices in Pakistan did not fully reflect this rise in prices. “Had the government passed on the entire burden to the people, the local prices would have been much higher,” he claimed, saying the government had given people relief through subsidies of Rs. 128 billion.
Aurangzeb noted the GDP growth in the outgoing fiscal year was recorded at 3.7%, growth in large-scale manufacturing was recorded at 6.1% and 4.1% growth was witnessed in the services sector. “The growth in LSM and services sectors is the highest in four years,” he said.
He said the size of the country’s economy had increased to $452 billion, terming it a “new milestone.” Per capita income had increased to $1,901 from last year’s $1,751 and the policy rate had seen a “historic decline” over the past two years, he added. He said the country’s foreign exchange reserves had increased to $17 billion from $4 billion three years ago. “This gives us an import cover for three months,” he said, adding remittances had reached $38 billion in the first 11 months of the outgoing fiscal year. He hoped this figure would pass $41 billion by the end FY26.
“It will be the highest in history,” he added.
Aurangzeb said the tax-to-GDP ratio had increased to 10.3%, while the fiscal deficit-to-GDP ratio was expected to reach 4%, down from 7.8% in June 2023. He said the average inflation was expected to remain around 7% in the outgoing year, adding it would reduce with de-escalation between the U.S. and Iran.
The minister also noted the Pakistan Stock Exchange saw a record increase of 173,000 new investors over the past year. He maintained reforms were under way in the Federal Board of Revenue, adding its annual tax revenue was Rs. 7,200 billion in FY2022-23 and now stood at Rs. 13,000 billion.
The government also introduced loan schemes for small farmers and businesses, he added.