In a move that could impact millions, the federal government of Pakistan is set to propose major tax reforms in the upcoming Budget 2025-26, targeting bank deposits, savings schemes, and even cash withdrawals.

According to Federal Board of Revenue (FBR) sources, non-filers may face a significant hike in withholding tax on cash withdrawals. The rate is expected to double from 0.6% to 1.2% for daily withdrawals exceeding Rs 50,000. The aim is to expand the tax net and generate more revenue from undocumented transactions.

In another blow to middle-income citizens, the government is likely to increase sales tax on small cars. Vehicles under 800cc, once considered affordable, may now carry higher levies. Locally assembled cars could also see a jump in General Sales Tax (GST) from 12.5% to 18%.

Additionally, taxes on petrol and diesel-powered vehicles, capital gains, and profit income are likely to go up. However, there’s some relief for big businesses, as the government is considering a reduction in super tax—subject to IMF approval.

National Development Program finalized

The Annual Development Program (ADP) for the upcoming fiscal year has been finalized, with over Rs 4 trillion proposed for national development. The federal Public Sector Development Program (PSDP) is expected to get around Rs 1,050 billion, while provinces will receive over Rs 2,800 billion.

Proposed allocations include:

• Punjab: Rs 1,192 billion

• Sindh: Rs 887 billion

• Khyber Pakhtunkhwa: Rs 440 billion

• Balochistan: Rs 280 billion

Projects for water and power infrastructure will receive Rs 259 billion, while Rs 229 billion are reserved for the National Highway Authority. The government plans to invest Rs 35 billion in the Diamer Bhasha Dam, and Rs 42 billion in education and health sectors.

The national economic council, chaired by the Prime Minister, will give final approval to the plan.

Growth targets & IMF talks continue

For GDP growth forecast, the government is aiming for 4.2% in the next fiscal year. Inflation is expected to ease to 7.5%, with agriculture growing by 4.5%, industry by 4.3%, and services by 4.7%.

Meanwhile, Pakistan-IMF budget talks are ongoing. A recent round on May 30 didn’t lead to final decisions. Discussions are still underway on tax targets, defense spending, subsidies, and providing relief to salaried individuals.

Talks also include reforms in the energy sector, adjustments in electricity tariffs, and a proposed carbon levy, for which a broad agreement has been reached, though the exact rate is yet to be decided.

The next fiscal blueprint is expected to align closely with IMF recommendations to ensure the release of critical financial support.