In the lead-up to the 2025–26 federal budget, the Government of Pakistan is considering a significant 18% hike in defence spending, potentially raising the allocation to over Rs 2.5 trillion. This move aims to bolster national security amid escalating regional tensions.

Concurrently, the government is proposing income tax relief measures for salaried individuals. One such measure includes reducing the tax rate for those earning Rs 100,000 per month from 5% to 2.5%. Additionally, there’s a proposal to raise the income tax exemption threshold from Rs 600,000 to Rs 1 million under the Income Tax Ordinance, 2001.

These proposals are part of broader fiscal reforms aimed at stimulating economic growth and providing relief to the middle class. However, the International Monetary Fund (IMF) has expressed reservations about broad tax relief measures without corresponding spending cuts or increased revenue targets.

The government is also engaging with the IMF to discuss deferring certain tax increases, such as the Federal Excise Duty on fertilizers and pesticides, to balance fiscal responsibilities with economic growth objectives.

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