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Budget 2025-26: Austerity budget offers ‘crumbs’ for relief

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• Next year’s revenue target set at Rs14.13tr
• Provinces’ contribution helps Centre outperform fiscal target, record lowest budget deficit in a decade
• Subsidy allocations have been reduced by 14pc
• Reduced debt servicing drives expenditure containment of nearly Rs2.26tr
• Generous tax relief, incentives for construction sector
• Fuel levy, electricity surcharges to rise next year
• Tough crackdown planned on non-filers, tax evaders
• Development spending squeezed to cut deficit

ISLAMABAD: Maintaining an aggressive stance on fiscal consolidation, as required by the Int­ernational Monetary Fund (IMF), Finance Minister Muhammad Aurangzeb on Tuesday still managed to offer some notional relief to the salaried class in the federal budget for fiscal year 2025-26, along with incentives for the real estate and construction sectors, in an effort to revive the struggling industrial sector and stimulate economic growth.

At the same time, however, the government announced it was imposing a ‘carbon levy’ of Rs2.5 per litre on petrol, diesel and furnace oil in the upcoming fiscal year, to be doubled the following year. It also introduced a 5 per cent tax on large pensions, an 18pc tax on imported solar panels, and an increase in the debt servicing surcharge on electricity to finance not only interest payments, but also principal debt. Additionally, it announced the gradual elimination of tax exemptions for the tribal areas beginning this year.

Ambitious targets

Despite a record tax shortfall of Rs1.07 trillion recorded for the current fiscal year, the finance minister set next year’s revenue target at Rs14.13tr — an 18.7pc increase from this year’s revised estimate of Rs11.9tr, against the original budget target of Rs12.97tr. This would include approximately Rs840 billion in additional revenue measures, on top of a Rs1.39tr automatic tax increase supported by projected inflation of 7.5pc and economic growth of 4.2pc and expenditure containment of nearly Rs2.26tr (equivalent to 2pc of GDP), driven primarily by reduced debt servicing costs, and also at the expense of development and public welfare initiatives.

Not only the Federal Board of Revenue (FBR), but the provincial governments, too, were unable to meet their commitment of maintaining a Rs1.22tr surplus for the current year. Still, they provided vital support to the federal government with a surplus of Rs1.01tr.

This contribution enabled the federal government to outperform its fiscal target and record a budget deficit of just 5.6pc of GDP (Rs6.44tr) — the lowest in a decade since FY2015-16 — compared to a higher projected deficit of 5.9pc (Rs7.28tr). This notable fiscal tightening was achieved through punishing additional taxation measures amounting to Rs2.2tr (1.8pc of GDP) alongside a reduction in expenditure as interest rates declined from a historic peak of 22pc.

Accordingly, the FY2025–26 budget sets an ambitious target to reduce the budget deficit to 3.9pc of GDP (Rs5.04tr), contingent upon a cash surplus of Rs1.46tr from the provinces. As a result, the primary budget surplus is projected to rise to 2.4pc of GDP, or Rs3.17tr, for the next year — up from this year’s 2.2pc of GDP (Rs2.5tr).

Relief for select groups

The government found sufficient fiscal space to offer some relief to the salaried class, who have been burdened by high tax rates, declining real incomes, and severe inflation over the past two years.

The finance minister proposed a reduction in income tax by half, to 2.5pc, on annual income between Rs600,000 and Rs1.2 million. It is pertinent to mention that there was a discrepancy in the income tax rate for the lowest taxable bracket announced by the finance minister and the tax rate mentioned in the finance bill, which was even lower at 1pc.

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Clarity is awaited on this matter. Similarly, the annual tax on a salary of Rs1.2m was proposed to be reduced to Rs6,000, down from the current Rs30,000. Mr Aurangzeb added that the income tax rate for those earning up to Rs2.2m per annum would be cut to 11pc, down from the current 15pc. Similarly, the tax rate has been reduced to 23pc from 25pc for salaried income between Rs2.2m and Rs3.2m. In addition, the finance minister acknowledged that oppressive tax rates were driving highly skilled professionals to migrate, contributing to a “brain drain”. As a corrective measure, he announced a 1pc reduction in the surcharge on annual incomes exceeding Rs10m.

Apart from this, a 10pc increase in salaries and 7pc rise in pensions was announced for government employees. The salaries of armed forces personnel would also be increased by 25pc, including a special relief allowance in recognition of their recent heroic performance in response to Indian aggression, the finance minister said.

At the same time, the government introduced a generous tax relief and incentives for the construction sector, including access to cheaper mortgage financing, in a bid to revive large-scale manufacturing, which has been contracting for the past three years due to unprecedented increases in energy and borrowing costs. To this end, the finance minister announced a reduction in the withholding tax on the purchase of real estate from 4pc to 2.5pc. The next two current withholding tax rates of 3.5pc and 3pc will also be reduced to 2pc and 1.5pc respectively.

Additionally, a 7pc federal excise duty imposed last year on the transfer of commercial properties, plots and houses has also been proposed to be abolished.

As a new initiative, the budget includes a tax credit on mortgages for homes of up to 10 marla (250 square yards) and flats of up to 2,000 square feet. This is in addition to a new scheme aimed at promoting mortgage financing. The finance minister also announced a reduction in stamp duty on property purchases in Islamabad Capital Territory, from 4pc to 1pc, and expressed hope that provincial governments would follow suit by reducing heavy taxation on immovable property.

The government also succeeded in persuading the IMF to exempt fertilisers and insecticides from taxation for the current year, in an effort to position agriculture as the engine of economic growth.

Tightening the net

On the other hand, the finance minister announced an increase in the tax rate on interest income from 15pc to 20pc, a move that may discourage savings. However, he clarified that this would not apply to small savers or investments in national saving schemes.

Similarly, digital marketplaces and online businesses are to be brought into the tax net through courier companies, it was announced. The minister also announced a 5pc income tax on pensions exceeding Rs10m per annum for pensioners under the age of 70. In a move to promote a cashless economy, non-filers will now be subject to a 1pc advance tax on cash withdrawals, up from the existing 0.6pc. Taxpaying businesses will be discouraged from making cash sales exceeding Rs200,000. Additional measures have also been introduced to encourage online transactions and digital payments.

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Strict steps will be taken against non-filers. Only taxpayers who submit their wealth statements will be allowed to undertake large financial transactions, such as the purchase of vehicles, immovable properties, securities, mutual funds, or the opening of certain bank accounts.

Tightening the noose around unregistered traders, the finance minister proposed the freezing of bank accounts, restrictions on property transfers, and the sealing of business premises in cases of serious violations of sales tax laws, with the involvement of trade bodies. In the same vein, he also announced a notional 0.5pc reduction in the super tax for corporate firms with annual incomes between Rs200m and Rs500m.

Improved tax collection

The finance minister noted a rise in the tax-to-GDP ratio, which has historically been one of the weakest aspects of Pakistan’s economy, from 8.8pc in June 2024 to 10.3pc in the first nine months of the current year. This figure is projected to reach 10.4pc by June 30, 2025. Including non-tax revenue, the federal tax-to-GDP ratio has improved to 11.6pc, representing an increase of 1.2 percentage points, up from 0.8 percentage points last year. The consolidated tax-to-GDP ratio, the finance minister added, has reached 12.3pc, including a 0.7pc contribution from the provinces. “The 1.6pc of GDP increase in FBR revenue is not only the highest in Pakistan’s history, but is also rarely seen anywhere else in the world in recent times,” the minister boasted.

Balancing the budget

The government has set the non-tax revenue target for the next year at Rs5.15tr, slightly higher than the current year’s Rs4.9tr. This brings the total gross federal revenue (FBR plus non-tax) to Rs19.28tr, up from the current year’s original budget target of Rs17.8tr, which was later revised down to Rs16.8tr. After transferring Rs8.2tr to the provinces, the net federal revenue is estimated to be Rs11.07tr for the next year, compared to Rs9.8tr this year. This leaves a projected federal deficit of Rs6.5tr, a reduction from the current year’s budgeted Rs8.5tr, which was later revised to Rs7.44tr.

Subsidy allocations have been reduced by 14pc to Rs1.19tr for the next year, down from Rs1.38tr in the current year. This is primarily due to a 13pc (Rs154bn) cut in power sector subsidies. The tariff differential subsidy for ex-Wapda distribution companies has been reduced by 9.7pc (Rs27bn) to Rs249bn, from Rs276bn this year. Meanwhile, the tariff subsidy for K-Electric has been cut by 28pc (Rs49bn), to Rs125bn from Rs174bn. An even larger reduction has been applied to the tariff subsidy for Azad Jammu and Kashmir, which has been reduced to Rs74bn from Rs108bn, reflecting a cut of 31.5pc.

The major non-tax revenue item is expected to be the petroleum levy on POL products, projected at Rs1.47tr, which is a 26pc increase from the current year’s Rs1.16tr. An even larger contribution is anticipated from State Bank of Pakistan profits, estimated at Rs2.4tr for the next year, though this marks a slight decline from Rs2.6tr this year.

The debt servicing cost for next year has been estimated at Rs8.2tr, representing an 8pc decline from actual repayments of Rs8.95tr, and 16pc lower than the original budget estimate of Rs9.78tr. Pension expenditure is expected to rise by around 4pc, reaching Rs1.06tr, up from Rs1.01tr this year. Military pensions are projected to grow by 12pc to Rs742bn, compared to a 10pc increase in civil pensions, which are expected to reach Rs243bn.

As a result, total current expenditure has been set at Rs16.29tr for the next year, slightly below this year’s figure of Rs16.39tr.

Published in Dawn, June 11th, 2025

Pakistan News

Balochistan Stands Firm Against Terror Security Forces Crush Coordinated Militant Assault

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ISPR, Rawalpindi

On 31 January 2026, terrorists of Indian sponsored Fitna al Hindustan attempted to disturb peace of Balochistan by conducting multiple terrorist activities around Quetta, Mastung, Nushki, Dalbandin, Kharan, Panjgur, Tump, Gwadar and Pasni.

On behest of their foreign masters, these cowardly acts of terrorism were aimed at disrupting the lives of local populace and development of Balochistan by targeting innocent civilians in District Gwadar and Kharan, wherein, terrorists maliciously targeted eighteen innocent civilians (including women, children, elderly and labours) who embraced Shahadat.

Security Forces and Law Enforcement Agencies being fully alert immediately responded and successfully thwarted the evil design of terrorists displaying unwavering courage and professional excellence. Our valiant troops carried out engagement of terrorists with precision and after prolong, intense and daring clearance operation across Balochistan, sent ninety two terrorists including three suicide bombers to hell, ensuring security and protection of local populace.

Tragically, during clearance operations and intense standoffs, fifteen brave sons of soil, having fought gallantly, made the ultimate sacrifice and embraced shahadat.

Sanitization operations in these areas are being continuously conducted and the instigators, perpetrators, facilitators and abettors of these heinous and cowardly acts, targeting innocent civilians and Law Enforcement Agencies personals, will be brought to Justice.

Intelligence reports have unequivocally confirmed that the attacks were orchestrated and directed by terrorists ring leaders operating from outside Pakistan, who were in direct
communication with the terrorists throughout the incident.

Earlier on 30 January, forty one terrorists of Fitna al Hindustan and Fitna al Khwarij were killed in Panjgur and Harnai. With these successful operations in last two days, the total number of terrorists killed in the ongoing operations in Balochistan has reached one hundred and thirty three.

Sanitization operations are being conducted to eliminate any other Indian sponsored terrorist found in the area. Relentless Counter Terrorism campaign under vision “Azm e Istehkam” (as approved by Federal Apex Committee on National Action Plan) by Security Forces and Law Enforcement Agencies of Pakistan will continue at full pace to wipe out menace of foreign sponsored and supported terrorism from the country.

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Pakistan’s Choices as Iran Faces a New Encirclement

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Paris (Imran Y. CHOUDHRY) :- Former Press Secretary to the President, Former Press Minister to the Embassy of Pakistan to France, Former MD, SRBC Mr. Qamar Bashir analysis : Pakistan steered its ship with admirable composure during the “twelve-day war,” which began with Israel–U.S. strikes on Iranian military and nuclear-linked targets in mid-June 2025 and escalated into sustained exchanges that lasted nearly two weeks, ending with a ceasefire around June 24. What made those twelve days unforgettable was not only the intensity, but the symbolism: Iran’s missile and drone barrages repeatedly penetrated Israeli airspace, challenging the psychological aura surrounding Israel’s multi-layered defense architecture—systems such as Iron Dome and David’s Sling that the world had come to view as near-absolute protection.
During that first phase, Tehran discovered that many relationships celebrated in peacetime become conditional in wartime. India—despite years of strategic engagement with Iran and the economic logic of connectivity projects designed to reach Central Asia—did not step forward in a manner Tehran expected. For Iranian observers, this was not merely silence; it felt like calculated distance, shaped by India’s wider strategic alignments and its concern that any global momentum toward a Palestinian two-state framework could echo into renewed international scrutiny of Kashmir. The war thus exposed not only military fault lines, but diplomatic ones, revealing how quickly geopolitics can reorder loyalties when the costs of association rise.
Pakistan, in that first phase, stood out as a notable exception. Islamabad’s political and diplomatic signaling leaned toward defending Iran’s sovereignty and opposing external aggression, a posture framed by regional media as meaningful support and a source of goodwill. Pakistan appeared willing to risk diplomatic discomfort to stand with a neighbor under direct attack, reinforcing a narrative of fraternal ties rooted in geography, culture, and shared historical memory. That moment, however, belonged to a specific kind of conflict—short, explosive, and bounded by the logic of rapid escalation and de-escalation.
The second phase is of a different character altogether. On January 23, 2026, President Donald Trump publicly confirmed that a U.S. armada was moving toward the Middle East, with major naval assets shifting into the Persian Gulf and the Indian Ocean as Washington framed the deployment around Iran’s internal unrest and the regime’s response to protests. This was not the sudden blaze of a twelve-day exchange; it was the slow, visible architecture of pressure—presence, signaling, and endurance.
In this new moment, Pakistan’s dilemma sharpens. The cost of being misunderstood becomes higher, the penalties of miscalculation more enduring. Islamabad must now decide how to protect its neighborhood, its economy, and its strategic credibility without turning itself into a battlefield, a base, or a bargaining chip in a contest far larger than any single state.
This complexity is deepened by Pakistan’s Middle East relationships. Beyond Saudi Arabia, Pakistan’s economic and financial space has long been underpinned by Gulf cooperation through investment flows, energy arrangements, and vast remittance networks tied to Qatar, Kuwait, and the United Arab Emirates. Yet this support exists within a regional context where many Gulf states view Iran not only as a strategic competitor but also as a religious and political rival, accusing Tehran of deepening sectarian divides and projecting influence through proxies in Lebanon, Iraq, Syria, Yemen, and Palestine. In this environment, overt Pakistani alignment with Iran would be more likely to unsettle Gulf capitals than reassure them, potentially narrowing Pakistan’s economic and diplomatic room for maneuver.
Against this backdrop, Pakistan’s first choice is open support for Iran—diplomatic, material, and, if forced by circumstances, kinetic. The appeal lies in moral clarity and neighborhood logic. Iran is a neighbor whose stability directly affects Pakistan’s western frontier, border security, and internal cohesion. Open support would reassure Tehran that it is not alone again, strengthening long-term trust and potentially discouraging any future strategic drift that could expose Pakistan’s flank. The cost, however, is immediate and tangible. Visible alignment against Washington risks economic retaliation, pressure through international financial channels, and political isolation in forums where U.S. influence remains decisive, while also unsettling Gulf partners who see Iran through a lens of rivalry rather than fraternity.
The second choice is alignment with the United States and Israel—offering cooperation that could include intelligence sharing, logistical facilitation, or strategic access. This path promises short-term diplomatic favor and potential financial relief, but it is the most combustible domestically and regionally. It would inflame public sentiment, sharpen sectarian and political tensions, and almost certainly provoke Iranian hostility in ways that could destabilize Pakistan’s western borderlands. The strategic blowback could be generational, recasting Pakistan’s image across the Muslim world and entangling it in a conflict whose objectives and endgame are not of its own making.
The third choice is declared neutrality. Pakistan would step back, deny its soil and airspace for conflict, and consistently call for de-escalation. The advantage is immediate insulation. Neutrality reduces the risk of becoming a direct target and preserves working channels with all parties. Yet neutrality in a pressure campaign can become a quiet punishment. Iran may still feel abandoned and revise its trust calculus. Washington may interpret restraint as passive resistance and still apply economic pressure. India could frame Pakistan as irrelevant or opportunistic while consolidating its own partnerships. Neutrality can be a shield, but it can also become an empty space others fill with their own narratives.
The fourth choice is calibrated dual-track strategy. Pakistan avoids loud, provocative rhetoric that triggers U.S. retaliation while quietly extending the maximum permissible support to Iran behind the curtain of diplomacy. This is survival statecraft in a world where economies can be choked without a single missile launched. The advantage is strategic breathing room: Pakistan preserves its financial and diplomatic channels while preventing Iran from feeling strategically orphaned. The risk is fragility. If exposed, secrecy can produce the worst of both worlds—U.S. anger without the protection of honesty and Iranian disappointment if the help appears too cautious or insufficient.
The fifth choice is multilateral internationalization—pushing the crisis into formal global forums such as the United Nations, the Organization of Islamic Cooperation, and ad hoc contact groups involving China, Russia, Turkey, and key European states. Instead of positioning itself as a bilateral actor between Tehran and Washington, Pakistan frames itself as a convener and agenda-setter, shifting the burden of mediation, legitimacy, and pressure onto a wider coalition. The advantage is dilution of risk. Decisions and outcomes no longer rest on Pakistan’s shoulders alone, and the crisis is embedded in a global framework that makes unilateral escalation politically costlier. The downside is loss of speed and influence. Multilateral processes are slow, consensus-driven, and often shaped by great-power rivalries that can stall momentum at the very moments when urgency is greatest.
These five paths do not exist in isolation; they overlap, collide, and constrain one another. Pakistan cannot fully embrace one without partially touching the others. Open support for Iran strains Gulf and Western ties. Alignment with Washington risks regional backlash. Neutrality invites suspicion from all sides. Dual-track strategy demands discipline and secrecy. Multilateralization trades immediacy for legitimacy. The art of statecraft lies not in choosing a single lane, but in sequencing these options in a way that preserves room to maneuver as circumstances evolve.
The most sustainable course for Pakistan lies in a disciplined blend of the fourth and fifth choices, anchored by the language of the third. Declared neutrality in public posture provides a shield against direct retaliation. Active, quiet stabilization with Iran preserves neighborly trust and reduces the risk of border spillover, refugee flows, and proxy escalation. Multilateral engagement internationalizes the crisis, embedding it in legal and diplomatic frameworks that slow the march toward unilateral coercion. At the same time, Pakistan must maintain cordial, pragmatic, and economically constructive relations with Washington, carefully calibrating its actions and rhetoric to avoid triggering sanctions or financial pressures that could further strain an already fragile economic landscape.
The twelve-day war proved that old myths can break and that “friends” can vanish when bombs fall. The January 23 mobilization proves something else: pressure campaigns are built to last, and nations survive them through balance, not bravado. Pakistan’s victory will not be found in loud slogans or reckless entanglement. It will be measured in its ability to protect its economy, preserve its Gulf lifelines, prevent western-border chaos, stand close enough to Iran to preserve brotherhood, far enough from provocation to deny adversaries a pretext for retaliation, and engaged enough with the world to ensure that when the region’s future is negotiated, Pakistan is not merely present, but heard.

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Ambassador Mumtaz Zahra Baloch addressed the Association of Pakistani Francophone Professionals

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Paris (Imran Y. CHOUDHRY):- Ambassador of Pakistan Madam Mumtaz Zahra Baloch addressed the Association of Pakistani Francophone Professionals at an event held at the Embassy of Pakistan in Paris, France.

Speaking on the occasion, the Ambassador outlined the multifaceted relations between Pakistan and France and the wider francophone world. She stated that while Governments create frameworks and agreements, it is the people professionals, academics, entrepreneurs, and civil society leaders, who give life to bilateral relationships between countries.

Ambassador appreciated the work of PPRF and its contribution in promoting professional networking and cultural exchanges between the Francophone Pakistanis and the French society and thus strengthening people-to-people links between Pakistan and France.

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