By Moaaz Manzoor

Pakistan’s federal budget has drawn a mixed response from economists and market experts, who see targeted relief measures and incentives for key sectors but caution that ambitious revenue targets and persistent fiscal pressures could hamper implementation of the key proposals announced in the Finance Bill 2026-27.

The budget projects total expenditure of Rs18.8 trillion and sets a Federal Board of Revenue tax collection target of Rs15.3 trillion, representing an 18% increase over the previous year. The government has also projected a fiscal deficit of Rs7.02 trillion, while aiming to maintain fiscal consolidation under its ongoing reform programme.

Analysts noted that the budget largely continues the government's fiscal consolidation agenda, seeking to balance revenue mobilisation with targeted relief measures while operating within limited fiscal space. However, concerns persist over the heavy debt-servicing burden, with interest payments alone consuming more than 42% of total expenditure and over half of projected tax revenues.

Speaking to Wealth Pakistan, Waqas Ghani, Head of Equity Research at JS Global Capital Limited, noted that the government had provided relief to businesses and taxpayers, which the market has received positively. Among the key measures is the reduction in super tax from 10% to 8% for companies with income exceeding Rs500 million, excluding banks, exploration and production firms, and fertiliser companies. According to him, the move could boost corporate earnings by 3-3.4%.

He also highlighted relief for salaried individuals through revised tax slabs, higher income thresholds and the abolition of the 9% surcharge on incomes above Rs10 million.

From a sectoral perspective, Ghani highlighted construction, automobiles, textiles and IT as the major beneficiaries. Reduced transaction taxes in the property sector are expected to support construction activity, while textile exporters stand to gain from the reduction in advance tax on exports from 2% to 1.25%. He further noted that extension of the Final Tax Regime (FTR) for the IT and IT-enabled Services sector until June 2029 would provide policy continuity and support export growth in the technology sector.

Meanwhile, Dr Sajid Amin Javed, Deputy Executive Director (Research) at the Sustainable Development Policy Institute, offered a more cautious assessment, arguing that the budget remains focused on fiscal stabilisation rather than structural economic transformation.

He said the government’s 4% GDP growth target appears achievable, but warned that much of the projected expansion could come from real estate activity, which generates limited employment and has weak linkages with the broader industrial sector.

Dr Javed also questioned the official inflation forecast of 8.2%, arguing that inflation could remain between 11% and 13% due to higher petroleum prices, a record petroleum development levy target, elevated energy costs and uncertainty in global oil markets.

While he described the FBR revenue target as attainable through economic growth, inflation and improved compliance, he expressed reservations about the expected contribution from the retailers’ taxation scheme.

According to Dr Javed, further reforms are needed to broaden the tax base and reduce inflationary pressures. He suggested increasing the tax exemption threshold for salaried individuals to Rs1.2 million, lowering the highest income tax slab to 30%, providing direct support to the construction sector and reducing reliance on petroleum levies.

The budget projects gross revenues of Rs20.6 trillion, including Rs5.3 trillion in non-tax revenues, while current expenditure is estimated at Rs17.5 trillion. Mark-up payments remain the single largest expenditure item, followed by defence spending, subsidies and grants, highlighting the narrow fiscal space available for development spending.

Credit: INP-WealthPk