Aurangzeb defends FY26 budget as relief-oriented, industry-driven

• No tax on pensions below Rs10m; over-75s fully exempt.
• Proposed 18% solar panel tax slashed to 10% on select items.
• FBR arrests now restricted; court warrant and approval needed.
  

ISLAMABAD: Finance Minister Muhammad Aurangzeb on Monday called the FY2025–26 budget a balanced plan aimed at public relief, industrial growth, spending cuts, revenue enhancement, and fair tax enforcement to drive sustainable, export-led growth.

While concluding the debate on the general discussion of the budget, the minister announced several tax and relief measures that were incorporated into the budget following suggestions from the finance committees of both the National Assembly and the Senate. 

He said the government was committed to economic stability amid regional uncertainty.

Aurangzeb said the government had announced major relief for the salaried class, stating that the income tax rate for those earning up to Rs3.2 million had been reduced from the proposed 2.5% to 1% for those earning between Rs0.6 million and Rs1.2 million annually.

He clarified that no tax would be imposed on pension commutation or gratuity, adding that only individuals receiving pensions above Rs10 million will be taxed, while those over 75 years of age are fully exempt.

On the solar energy front, the minister clarified that the earlier proposed 18% sales tax on imported solar panel components had been reduced to 10% and will apply only to 46% of imported items, resulting in only a 4.6% increase in the price of imported solar panels.

The finance czar also condemned opportunistic hoarding and artificial price hikes by some market players ahead of the new tax’s enforcement, warning that strict legal action will be taken in coordination with provincial governments.

 “Such manipulation and hoarding are condemnable. The government will take strict action under the law against those who exploit public needs,” he said.

The minister said that, under the prime minister’s special directives, the powers of the Federal Board of Revenue (FBR) to arrest individuals have been strictly regulated.

In cases involving Rs50 million or more, the FBR cannot arrest anyone without a court warrant and only under specific conditions, such as deliberate evasion after three notices, an attempt to abscond, or formal referral for prosecution. 

Arrests must also be approved by a three-member FBR committee, and the accused must be presented before a special judge within 24 hours, ensuring protection against arbitrary detention and abuse of authority.

The Finance Bill 2025-26 had proposed restrictions on large asset purchases by undocumented individuals. However, following the PM’s direction, these restrictions will not apply to residential houses up to Rs50 million, commercial plots or properties up to Rs100 million, and the purchase of vehicles worth up to Rs7 million.

Additionally, under the existing law, capital gains tax will not apply to property sold after six years of purchase, provided it was acquired before July 1, 2024.

However, such transactions will be subject to a 4.5%–6% withholding tax on purchase, which he said was generally returned upon filing returns.

He added that property held for personal use for 15 years or more would not be subject to this withholding tax, adding that keeping in view the positive contribution of e-commerce to the economy, the government had rationalised the tax to help it flourish. 

Aurangzeb added that while export facilitation schemes in recent years allowed exporters to import raw materials without paying taxes and duties, the policy unintentionally distorted market prices of domestically produced cotton and yarn, adversely affecting local farmers.

To address this, the government has proposed imposing a sales tax on the import of raw cotton and yarn to reduce the price gap between imported and local products and to support the domestic agriculture sector, according to the finance minister.

The finance minister informed that new tax measures have been carefully designed to avoid burdening the common man. 

"Instead, the focus is on high-income segments and wealthier businesses. He added that under Prime Minister Shehbaz Sharif’s special directive, export-oriented industries have been largely kept exempt from new taxes to preserve global competitiveness," the minister said.

In terms of income tax reforms, he proposed raising the tax rate on inter-corporate dividends derived from mutual funds and similar instruments from 25% to 29%, bringing it in line with other sources of income. 

Meanwhile, returns on investment in government securities by companies will now be taxed at 20%, up from existing rates.

"The government has proposed a tax of Rs10 per broiler chick, citing the poultry industry’s minimal tax contribution," he added.

The minister warned that the ongoing Iran-Israel tensions may affect regional economic stability. 

However, he assured the House that the government was closely monitoring developments.

“Prime Minister Shehbaz Sharif constituted a high-level committee on June 14 to assess the impact of this conflict on Pakistan’s economy.”

He said that the government was resolved to steer the economy toward sustainable growth while protecting the vulnerable and documenting the untapped potential of the domestic market.

He termed the documentation of the economy the most important initiative of the budget, which would help reduce informality, enhance exports, and improve revenue streams. 

He said that the new budget aims to promote industry, support construction, and introduce eco-friendly tax measures to combat environmental degradation.

The finance minister informed that a significant increase in the budget of the Benazir Income Support Programme (BISP) — from Rs592 billion to Rs716 billion — will benefit over 10 million low-income families. 

“We aim to transform these households into self-reliant contributors to the economy by providing resources and skill-building opportunities,” he stated.

The finance czar announced an initiative in collaboration with the British Asian Trust to help equip youth with market-aligned skills for long-term employment.

"To support the agriculture sector, especially small-scale farmers, the government is launching a collateral-free loan programme, offering loans of up to Rs1 million to farmers owning up to 12.5 acres of land." 

He added that these loans would cover seeds, fertilisers, pesticides, diesel, and other essential inputs. Health and crop insurance facilities will also be provided under the scheme.

"The government will also introduce an electronic warehouse receipt system, allowing farmers to store crops securely and obtain better market prices, thereby contributing to national food security."

He further highlighted upcoming policy measures, including a new Industrial Policy, progress on the Electric Vehicle (EV) Policy, and comprehensive energy sector reforms aimed at achieving sustainable growth.

He also announced a 20-year loan scheme for low-income individuals to help them build or purchase houses. Under the Women Inclusive Finance Programme, he said, loans worth approximately Rs14 billion have been provided to over 193,000 women. 

"In the coming year, another Rs14 billion will be extended to women with support from the Asian Development Bank."

He affirmed the government’s determination to complete development projects in a phased manner to ensure the success of the budget and the country’s economic revival.