Pakistan Federal Budget 2025-26: Key Highlights & New Taxes

The Federal Budget 2025-26 has been presented in the Pakistan National Assembly, featuring some pleasant announcements and also some some less palatable measures. This federal budget provided much-needed relief to the people of salaried class. However, non-filers are not going to like it as their transactions have been restricted even more. In addition, cars, solar panels, property, online shopping, and many other categories have been affected by this budget, which we will discuss in this blog.

Let’s start with the income tax reduction and increase in salaries.

Income Tax

One of the most discussed aspects of the federal budget 2025-26 is the change in income tax for salaried individuals in Pakistan. It has been reduced for most of the slabs, but the minimum exempted income tax slab is kept to 600,000, which was expected to be increased. Let’s see the new and old income taxes for each slab:

Annual Income	Tax Rate Old (2024-25)	Tax Rate New (2025-26)
0 to 6 Lacs	0%	0%
Up to 12 Lacs	5% of the amount exceeding Rs. 600,000	1% of the amount exceeding Rs. 600,000
12 Lacs to 22 Lacs	Rs. 30,000 + 15% of the amount exceeding Rs. 1,200,000	Rs. 6,000 + 11% of the amount exceeding Rs. 1,200,000
22 Lacs to 32 Lacs	Rs. 180,000 + 25% of the amount exceeding Rs. 2,200,000	Rs. 116,000 + 23% of the amount exceeding Rs. 2,200,000
32 Lacs to 41 Lacs	Rs. 430,000 + 30% of the amount exceeding Rs. 3,200,000	Rs. 346,000 + 30% of the amount exceeding Rs. 3,200,000
More Than 41 Lacs	Rs. 700,000 + 35% of the amount exceeding Rs. 4,100,000	Rs. 616,000 + 35% of the amount exceeding Rs. 4,100,000

This decrease of around 2.5% is intended to put a little more take-home pay in employees’ pockets amid rising living costs.

Salary Increase & Pensions

Moving to the salary increase, it’s 10% for the employees in government sectors.

Talking about retired government employees, their pension has been increased by 7%. In addition, the finance minister announced important pension reforms to ensure the system’s sustainability. Notably, the duration of a family pension (the pension passed on to a spouse a pensioner’s death) is now capped at 10 years.

Property

The real estate sector sees a mix of incentives and continued reforms. Starting with the housing scheme focused towards low-income people. The details are yet to be revealed, but the idea seems to be subsidised loans or low-cost housing units.

There is a proposal to abolish the FED on commercial property, which was 7% last year on the sale or purchase of property. Not only this, but withholding tax on the purchase of property has also been reduced as follows:

4% to 2.5%
3.5% to 2%
3% to 1.5%

Also, the federal government has reduced the stamp duty fee from 4% to 1% in Islamabad. All these efforts show that the government is aiming to revive the real estate and construction industry in Pakistan.

Vehicles

If you are planning to buy a car, there are some important points for you to know in this budget. Certain types of cars will face higher taxes, especially the small cars. The smaller engine cars (less than 850cc) enjoyed 12.5% sales tax, which has been increased to the standard 18% GST. So, Suzuki Alto’s price is going to increase soon? If you ask me, these smaller engine cars are mostly bought by people with low to medium incomes. This policy (“streamline” the tax system by taxing all cars uniformly) will make it harder for them to purchase even an entry-level new car.

A new levy on internal combustion engine (ICE) motor vehicles has been proposed in the federal budget 2025-26 and it will impact both manufacturers and importers. It is structured into different categories which are as follows:

Under 1300cc: 1% levy
1300cc to 1800cc: 2% levy
Over 1800cc: 3% levy
Commercial Vehicles: 1% levy

If I talk about the brighter side raw materials and CKD parts faces a lower duty (from 20% previously to 15% now).

Wait, there’s more in the vehicles! The government has also worked on the New Energy Vehicle Policy to promote electric vehicles, especially 2 and 3-wheelers in Pakistan, aiming to shift a substantial portion of these vehicles towards electric power.

Federal Budget 2025-26 Impact on Non-Filers

This fderal budget 2025-26 really turns up the heat for the non-filers.

So,if you are a non-filer, life is about to get a little inconvenient. Here are the restrictions on the non-filers:

Non-filers

After this federal budget 2025-26, Non-filers will not be able to

Trade shares
Buy property
Buy a car
Invest in mutual funds

Moreover, the cash withdrawal tax is to be increased from 0.6% to 1% for the non-filers for single-day transactions exceeding Rs. 50,000.

Will Online Shopping be Expensive?

Love online shopping? Things may get pricier soon as the government has brought a new policy: an 18% sales tax on many online purchases, to be collected by courier or payment providers. Under the new framework, if you buy something online, payment intermediaries like banks and mobile wallets will now collect sales tax on digital payments, and courier companies will collect it on Cash-on-Delivery (COD) orders. Not only this, but a 5% tax on the imported e-commerce items is also proposed.

The proposed rates of advance tax deduction are as under:

Rates of Deduction for Payments Through Digital Means

Description	Tax Rates
Where the amount paid does not exceed Rs. 10,000	1% of the gross amount paid
Where the amount paid between Rs. 10,000 to Rs. 20,000	2% of the gross amount paid
Where the amount paid exceeds Rs. 20,000	0.25% of the gross amount paid

Rates of Deduction for Cash on Delivery

Description	Tax Rates
On supply of electronic goods	0.25% of the gross amount paid
On supply of clothing articles, apparels, garments etc.	2% of the gross amount paid
On supply of goods other than mentioned above	1% of the gross amount paid

Solar Panel Prices Will Increase?

When the trend of solar energy started to rise in Pakistan, the government approved an 18% general sales tax on solar panel imports. It is to encourage local manufacturing. However, the best solar panels in Pakistan are mostly imported. So, it will increase the cost of getting solar panels. It doesn’t seem to be a great decision as it might reduce the number of households converting to green energy.

Federal Budget 2025-26 Custom Duties

In line with its broader economic reforms, the government has introduced changes to customs duties and tariffs on imports. Regulatory duties are to end by 2030, and Customs Act 1969 Schedule 5 will be abolished in 5 years.

Custom duty maximum slab is proposed to be 15% compared to 20% (previous maximum slab), which will mostly benefit the:

Pharma
Textile
Engineering
IT & telecom

Other Proposals (Federal Budget 2025-26)

Here are some other impacts of the Pakistan Federal Budget 2025-26:

The budget shows support to small and medium enterprises, with 100 Arab rupees in small business financing to be allocated.
Up to 1 lakh guarantee free debt to agriculturists is also proposed.
Items with no barcodes or tax stamps will now be seized.
Super Tax on 20 crore to 50 crore annual income reduced by 0.5%
2.5% Carbon Levy on petrol and diesel
Steel raw material import duty reduced from 15% to 10%
Textile raw material import duty abolished

Final Verdict (Federal Budget 2025-26)

The federal Budget 2025–26 of Pakistan is a mix of reliefs and new duties, carefully crafted under the watch of the IMF and amidst domestic economic challenges. Salaried individuals are going to cheer as the income tax has been reduced. The property market and construction industry will also see improvement after the approval of the budget. However, things don’t look too promising for the non-filers and the people interested in buying small cars.

What are your thoughts on the Pakistan Federal Budget 2025-26? Also share with us in the comment section below.