AsiaNet-Pakistan Premier Editorial Content and Press Release Distribution Service
Islamabad: The Federal Budget for the fiscal year 2025-26 has been revealed, projecting a fiscal deficit of 3.9% of GDP, the lowest in two decades. This reduction is attributed to an estimated 18.7% growth in tax revenues and significant cuts in debt servicing and pension expenses.
The budget outlines an increased defense spending, the highest rise in 15 years, made possible by shifting reliance on PSDP funding and capital expenditures to provincial shares and state-owned enterprises. Economic growth stimulation is a key focus, with reforms aimed at boosting agricultural productivity, industrial activity, exports, and the digital and IT sectors.
The financial market is expected to react positively, as higher taxes on profit from debt could enhance the appeal of equities. Revised taxation on mutual fund dividends is anticipated to encourage a shift toward equities, while the government’s increased use of Islamic financing instruments is seen as positive for the Pakistan Stock Exchange. Banking sector benefits are anticipated from higher taxation on cash withdrawals and asset purchase restrictions for non-filers.
Achieving the tax revenue increase target necessitates coordination with provinces, particularly through taxation reforms and fiscal adjustments. The National Fiscal Pact is highlighted as essential for rebalancing intergovernmental relationships.
For taxpayers, the budget offers a reduction in the tax rate for the salaried class and a minor decrease in the super tax rate for higher income brackets. Customs and regulatory duties have also been cut as part of a tariff rationalization effort.
Addressing climate change, the government has introduced a carbon levy on motor fuels and is pushing for electric vehicle adoption through subsidies and additional levies.
The budget is favorable for cement and construction materials sectors due to increased PSDP allocation and tax adjustments. However, banking deposit growth may face short-term challenges due to higher tax rates on profits from debt and cash withdrawals for non-filers. A higher Petroleum Development Levy is expected to mitigate inventory losses for oil marketing companies and refineries.
AKD Securities Limited highlights top investment picks in response to the budget, including OGDC, PPL, PSO, FFC, ENGROH, MEBL, MCB, HBL, LUCK, FCCL, INDU, and SYS.