Pakistan Federal Budget 2024-25: Key Highlights and Impacts

The Finance Minister has unveiled the federal budget for 2024-25, a critical step for securing the new IMF program. The budget reflects the government’s commitment to fiscal consolidation, aligning closely with IMF directives. However, there is a noticeable lack of significant reform efforts to incorporate untaxed sectors into the tax net.

Tax reforms and revenue measures

Increased Revenue Targets

The government has set an ambitious revenue target of PKR 12.9 trillion for FY25, a significant increase from the PKR 9.2 trillion revised estimate for FY24. This growth is expected to be driven primarily by income tax and indirect taxes.

Revenue Breakdown:

Revenue Source	FY24 (PKR Trillion)	FY25 (PKR Trillion)	Growth (%)
Total Revenue	9.2	12.9	40%
Income Tax	3.6	5.4	48%
Indirect Taxes	–	–	35%

Tax Adjustments for Individuals and Businesses

• Income Tax: The highest tax bracket now applies to annual salaries exceeding PKR 4.1 million, down from the previous PKR 6 million. The minimum taxable income remains unchanged at PKR 0.6 million.
• Export Income: Export income will now fall under the normal tax regime instead of the final tax of 1%, increasing the tax burden on export-based companies.
• Capital Gains Tax (CGT): The CGT rate for non-filers has been increased up to 45%, while it remains flat for filers at 15%.

Non-Tax Revenue

Non-tax revenue will also play a crucial role, with significant contributions expected from the Petroleum Development Levy (PDL) and profits transferred from the State Bank of Pakistan (SBP).

Non-Tax Revenue Contributions:

Source	FY24 (PKR Trillion)	FY25 (PKR Trillion)	Growth (%)
PDL	0.9	1.2	33%
SBP Profit	0.9	2.5	178%

Fiscal measures and economic impact

Government Spending

Government expenditure is set to rise, with significant increases in interest payments, defense, and development spending.

Expenditure Breakdown:

Expenditure Source	FY24 (PKR Trillion)	FY25 (PKR Trillion)	Growth (%)
Interest Payments	8.3	9.7	18%
Defense Budget	1.8	2.1	14%
PSDP	0.95	1.4	47%

Fiscal Deficit and Financing

The government aims to reduce the fiscal deficit to PKR 7.2 trillion, equivalent to 5.9% of GDP, primarily financed through borrowing from domestic banks.

Fiscal Deficit and Financing:

Item	Amount (PKR Trillion)
Fiscal Deficit	7.2
Domestic Financing	7.8
External Financing	0.7

Sectoral impacts

Banking Sector

The banking sector is expected to see an increase in taxable income, which could lead to higher effective tax rates.

Textile Sector

The textile sector, which contributes 8.5% to GDP and employs 40% of the labor force, faces significant challenges due to increased taxes and a higher minimum wage.

Automobile Sector

The automobile industry will likely remain under pressure due to increased customs duties on imported vehicles and higher sales taxes on tractors.

Conclusion

The 2024-25 federal budget aims to achieve fiscal consolidation and secure IMF support but falls short on implementing extensive reforms. The increased tax burden on various sectors and individuals reflects the government’s attempt to boost revenue, albeit with potential resistance from affected parties.

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Disclaimer:

The information in this article is based on research by Insight Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.