For years, I’ve advocated free enterprise, open trade, limited government, and low tax rates as pillars of prosperity. Budget 2025-26 brings welcome news on several of these fronts.
Tariff Reductions to Boost Competitiveness
The government plans to cut average customs duties from 20% to 10%, eliminate regulatory and additional duties, simplify duty slabs (0%, 5%, 10%, 15%), and phase out exemptions within five years. This shift promises to make Pakistan’s economy more competitive and export-driven.
While some business groups have resisted the timeline, citing inadequate preparation time, the National Tariff Policy (2019–24) had already set the direction. The five-year adjustment window should be ample, although it might still be too cautious for true reform.
A Leaner Government — On Paper
Public expenditure is projected to decline from 26% of GDP in 2024–25 to 22.6% in 2025–26. While the intent to shrink the government is commendable, it currently lacks a detailed roadmap. Most of this budgeted decline stems from reduced debt servicing costs and underutilized development funds—not yet from structural changes.
Stagnant Progress on Income Tax Reform
Despite positive moves like raising the income tax threshold, Pakistan’s top marginal tax rates remain excessively high, especially for salaried and corporate taxpayers. Businesses with slim profit margins suffer the most. One CEO told me that with just a 5% profit margin, the effective tax burden can hit 52%, and rise to 74% if margins drop to 3%.
Such punitive taxation discourages investment and growth. There remains a critical need to rationalize the tax code to support, not penalize, enterprise.
A More Democratic Budgeting Process
For the first time in Pakistan’s history, the National Assembly’s Standing Committee on Finance reviewed the Finance Bill clause-by-clause. As an independent economist, I attended every session and witnessed a genuinely cross-partisan debate on revenue measures and public spending.
PPP Supports Federal Budget After Key Tax and Welfare Demands Accepted
Despite IMF constraints and rigid federal-province revenue sharing structures, several meaningful changes were recommended and adopted.
Key Amendments Include:
-
GST on solar panel imports reduced from 18% to 10%
-
Protections introduced against arbitrary arrests for alleged tax fraud
-
Equal condonation rights for both taxpayers and authorities
-
Restrictions on account freezing for GST non-registration
-
Income tax rate for the second slab lowered from 2.5% to 1%
Toward a Research-Backed Democracy
To sustain these improvements, open access to research and fiscal data is essential. Establishing a Parliamentary Budget Office, as proposed by a private member bill, could revolutionize parliamentary oversight. Such an office would provide independent analysis on fiscal policy, empowering lawmakers to make informed decisions.
Conclusion:
Budget 2025-26 marks a promising shift. Lower tariffs, restrained public spending, and a more democratic review process reflect meaningful reform. While challenges remain—particularly around tax policy and government size—the budget lays a foundation for strengthening both economic freedom and democratic governance in Pakistan.
