Budget of missed opportunities

Every federal budget presents an opportunity for the government to set a clear and confident direction for economic progress. As we examine the recently announced Budget 2025-26, I find myself reflecting on the balance between ambition and pragmatism, vision and execution.

While the budget introduces some positive reforms, one feels it falls short of delivering substantial relief to key areas of the economy for economic revival.

One of the most striking observations is the limited relief offered to the corporate sector, more specifically the relief is extended to small businesses only. In an environment where businesses are already navigating a complex web of macroeconomic and regulatory challenges, this budget was an opportunity to inject much-needed confidence. Instead, the measures announced fall short of signalling an investment-friendly environment.

For instance, the marginal reduction in the Super Tax may appear as a gesture towards easing the burden, but it does little to change the ground realities. A temporary tax introduced in extraordinary circumstances should have seen a well-defined roadmap for its complete phasing out. Its continuation in the current form risks further dampening the country’s investment climate.

Similarly, while the government has announced lower tax rates for salaried individuals, the relief provided is minimal. Given the current wave of emigration of skilled professionals and a persistent brain drain, more substantial reforms were warranted to retain and support the country’s human capital. Unfortunately, these adjustments seem unlikely to reverse that trend.

We have also observed that the budget does not outline a concrete strategy to document Pakistan’s sizeable Rs9 trillion cash-based informal economy. Formalising this segment remains essential for long-term revenue growth and economic inclusion, an area the Overseas Investors Chamber of Commerce & Industry has consistently highlighted as a key opportunity for broader fiscal reforms.

Equally concerning is the lack of targeted support for the services sector, a significant contributor to Pakistan’s GDP. Despite its growing importance in the global economy and its potential to create employment, the sector remains largely overlooked in the fiscal plan. The same can be said for retirees and pensioners who rely on passive income streams and are unlikely to benefit from the stock market concessions. Assuming broad-based participation in equity markets when crafting fiscal incentives overlooks the realities of Pakistan’s financial demographics.

The Finance Bill 2025-26 has not addressed the issue of unclaimable input sales tax due to sales tax exemption on petroleum products, a matter that has been a point of concern for the energy sector. This sector continues to absorb the input tax which impacts cash flows and adds to the cost of doing business. We have been informed that an investment of approximately $6 billion is currently on hold in the energy sector due to a lack of clarity in this respect.

The empowerment of the FBR or the chief commissioner to post officers at taxpayers' business premises marks a shift towards real-time monitoring and enhanced tax compliance. While this move reflects the government’s intent to curb tax evasion and plug revenue leakages, it also raises important considerations around operational autonomy, data confidentiality, and the potential for administrative overreach. For this measure to be effective and equitable, it is crucial that clear standard operating procedures (SOPs) and safeguards are put in place to ensure transparency, prevent misuse, and maintain a balance between regulatory oversight and the ease of doing business.

On the flip side, the budget appears to extend favourable treatment to the real-estate sector, including reducing taxes. While stimulating real estate activity can have a multiplier effect, such measures must be balanced and aligned with long-term fiscal objectives. Equitable relief across sectors would send a more reassuring signal to the broader business community.

That said, it would be remiss not to acknowledge the positive steps taken. The OICCI welcomes reforms like the simplification of tax returns for salaried individuals and small businesses, the nationwide rollout of e-invoicing, and the expansion of point-of-sale (POS) systems. We have long advocated these measures, and we are encouraged to see them incorporated. However, their true impact will be determined by the transparency and consistency with which they are implemented. Reform without thorough execution often leads to more confusion than clarity.

We also appreciate the government’s efforts to gradually withdraw tax exemptions in (former) Fata and Pata and its decision to intensify enforcement against non-compliant taxpayers. Restricting property and vehicle purchases and asset transfers for non-filers are tough but necessary steps to promote a tax compliance and accountability culture.

Introducing a carbon levy on petroleum products is a welcome step, as it aligns with global efforts to promote cleaner energy sources and reduce carbon emissions. It is a step in the right direction for encouraging more sustainable energy consumption patterns in Pakistan. However, the said initiative is somewhat undermined by the simultaneous imposition of an 18% sales tax on imported solar panels.

While one measure seeks to discourage the use of fossil fuels, the other makes clean energy alternatives less accessible to consumers. This policy inconsistency risks discouraging the very transition the carbon levy aims to support. For the much-needed shift towards renewable energy, fiscal measures across the board must be aligned in both intent and execution.

The taxation of the e-commerce sector is another promising initiative. Yet, the challenge lies in effective implementation. How this sector is brought into the formal tax net, and whether it contributes meaningfully to revenue generation, will be closely watched by stakeholders across the board.

I also find it important to highlight a critical assumption in the budget, the GDP growth. With the growth rate recorded at 2.4% until the third quarter of the fiscal year, compared to 1.5% in the second quarter, the projection of a 2.68% year-end figure appears ambitious, if not overly optimistic. Bridging such a gap in a single quarter without significant policy shifts and slugging large-scale manufacturing raises questions about the underlying assumptions.

The corporate sector has always been the backbone of Pakistan’s economy. It is the engine that drives investment, employment and innovation. If there was ever a time for the government to take businesses into confidence and offer them a clear, supportive roadmap, it is now.

What we need is not just incremental reforms, but a holistic approach that builds trust, promotes sustainability and sets the country firmly on the path of inclusive economic growth.

The writer is the chief executive and secretary general of the Overseas Investors Chamber of Commerce & Industry (OICCI).

Disclaimer: The viewpoints expressed in this piece are the writer's own and don't necessarily reflect Geo.tv's editorial policy

Originally published in The News