Federal Budget 2025-26: Pay Raise for Government Employees, Major Tax Relief for Salaried Class Proposed

ISLAMABAD – The National Assembly session for presenting the federal budget for the fiscal year 2025-26 is currently underway, with Finance Minister Muhammad Aurangzeb unveiling the much-anticipated budget. The session began with a recitation of the Holy Quran, followed by a Naat and the national anthem. Speaker Ayaz Sadiq is presiding over the session.
Key Highlights from the Finance Minister’s Speech:
Finance Minister Muhammad Aurangzeb expressed gratitude to the Prime Minister and political leaders, emphasizing that the budget is being presented under extraordinary circumstances, especially as the nation has demonstrated remarkable unity in the face of recent regional challenges. He reiterated the government’s focus on economic stability and inclusive growth, aiming to deliver prosperity to every segment of society.
Aurangzeb noted a significant rise in remittances, expecting them to reach $37 billion by the end of the current fiscal year. He also highlighted reforms in the Federal Board of Revenue (FBR), stating that over Rs. 78.4 billion in difficult revenues were recovered, and Rs. 77 billion were collected through Alternate Dispute Resolution (ADR) mechanisms.
Major Budget Proposals and Allocations:
Salary & Pension Increases:
10% increase in salaries for government employees
7% increase in pensions
30% disparity allowance for employees in Grade 1 to 16
Income Tax Relief for Salaried Class:
Significant reduction in tax rates across income slabs
For those earning between Rs. 600,000 and Rs. 1.2 million annually, the tax rate cut from 5% to 1%
For income up to Rs. 2.2 million, tax rate cut from 15% to 11%
For up to Rs. 3.2 million, the rate reduced from 25% to 23%
Budget Volume & Deficit:
Total federal budget outlay: Rs. 17,573 billion
Estimated budget deficit: Rs. 6,501 billion (5% of GDP)
Revenue Targets:
Gross revenue target: Rs. 19,298 billion
Net revenue target: Rs. 11,072 billion
FBR tax collection target: Rs. 14,131 billion
Non-tax revenue target: Rs. 5,147 billion
Privatization proceeds target: Rs. 87 billion
Major Allocations:
Defense: Rs. 2,550 billion
Interest payments on debt: Rs. 8,207 billion
Pensions: Rs. 1,055 billion
Subsidies: Rs. 1,186 billion
Emergency and disaster relief: Rs. 289 billion
Federal PSDP (development budget): Rs. 1,000 billion
Net lending: Rs. 287 billion
Economic Projections:
GDP growth target: 4.2%
Inflation target: 7.5%
Exports target: $35.3 billion
Imports target: $65.2 billion
Remittances target: $39.4 billion
Current account deficit projection: $2.1 billion (0.5% of GDP)
Sectoral Growth Targets:
Agriculture: 4.5%
Industry: 4.3%
Services: 4.0%
Manufacturing: 4.7%
Large-scale: 3.5%
Small-scale: 8.9%
Construction: 3.8%
Financial services: 5%
Information & communication: 5%
Water and Infrastructure Projects:
Ministry of Water Resources allocated Rs. 133 billion
Karachi K-IV water project: Rs. 3.2 billion
Dams:
Diamer-Bhasha: Rs. 32.7 billion
Mohmand: Rs. 35.7 billion
Balochistan (Awaran, Panjgur, and others): Rs. 5 billion
The government aims to strike a balance between growth and fiscal responsibility with this budget, focusing on economic reforms, tax relief for the middle class, and targeted development spending to address regional disparities and future challenges.