Islamabad: The federal government is set to present the Federal Budget for fiscal year 2026-27 today, with a total outlay exceeding Rs17.5 trillion.
The budget is expected to include increases in salaries and pensions for government employees, along with tax relief measures worth up to Rs50 billion. Despite the proposed relief, the government is likely to set a tax revenue target of Rs15.267 trillion for the next fiscal year.
According to reports, a special meeting of the federal cabinet, chaired by Prime Minister Shehbaz Sharif, will be held today to approve the draft budget for FY2026-27 as well as proposed increases in salaries and pensions for public sector employees. Following cabinet approval, Finance Minister Muhammad Aurangzeb will present the federal budget in Parliament.
Sources said the government has decided not to make any changes to taxes imposed on solar panels, stationery items, and the stock market. A proposal to increase the sales tax on solar panels from 10 percent to 18 percent has been withdrawn, while a suggested increase in sales tax on stationery products has also been excluded from the budget.
However, the budget is expected to raise the sales tax on imported electric vehicles (EVs) to 25 percent, while existing tax rates on hybrid vehicles are likely to remain unchanged. Tax incentives for environmentally friendly electric vehicles are also under consideration, while a carbon levy is proposed on vehicles running on conventional fuels. The move could make larger vehicles more expensive, while locally manufactured electric vehicles may become more affordable.
To encourage domestic EV production, the government has proposed reducing customs duty on motors, batteries, and other EV components to one percent. It has also recommended maintaining sales tax at one percent and granting complete exemptions from Federal Excise Duty, Capital Value Tax, and Withholding Tax on these components.
Sources further revealed that the government plans to collect Rs1.727 trillion through petroleum levy in the upcoming fiscal year. An allocation of Rs7.824 trillion has been proposed for debt servicing, while approximately Rs3 trillion is expected to be earmarked for the defense sector.
The country’s trade deficit is projected to remain above $37 billion during FY2026-27. The export target has been set at $32.8 billion, while imports are estimated at $70 billion.
Economic targets for the next fiscal year include agricultural growth of 3.8 percent, industrial growth of 4 percent, large-scale manufacturing growth of 4.5 percent, and services sector growth of 4.2 percent. The government has also set a target of creating two million new jobs, including 1.1 million in the services sector, 500,000 in industry, and 400,000 in agriculture.
The National Economic Council (NEC) has already approved key economic targets for the upcoming budget, along with a national development plan worth Rs3.669 trillion. The size of the federal Public Sector Development Programme (PSDP) has been set at Rs1 trillion.
A total of Rs2.218 trillion has been allocated for development projects across the four provinces, while the federal and provincial governments are expected to jointly save Rs1.046 trillion in development spending. Development allocations have been reduced by Rs701 billion for Punjab, Rs110 billion for Sindh, and Rs109 billion for Khyber Pakhtunkhwa.
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Sources said it has been decided that no new development projects will be launched except those related to defense and the Ministry of Interior.
The government is also considering tax relief of approximately Rs50 billion for the salaried class. The number of income tax slabs may be increased from six to eight. According to sources, relief is being considered for individuals earning more than Rs183,000 per month.
Tax concessions for higher-income earners are also under discussion. Under a proposed plan, income tax on monthly earnings of up to Rs267,000 could be reduced by five percentage points, bringing the applicable tax rate down from 25 percent to 20 percent. Nearly 400,000 employees are expected to benefit from this measure.
Sources said proposals are also being reviewed to impose a 29 percent tax rate on monthly income up to Rs467,000 and a 32 percent tax rate on monthly income up to Rs583,000. The maximum tax rate of 35 percent is likely to remain unchanged for individuals earning more than Rs583,000 per month.
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The same rate structure is proposed for individuals with annual incomes exceeding Rs7 million, while the surcharge currently imposed on those earning more than Rs10 million annually may be abolished.
In addition, the federal budget for FY2026-27 is expected to bring cryptocurrency transactions into the tax net. Sources said a Capital Gains Tax may be imposed on profits earned through crypto trading.
