Pakistan: Federal Budget For FY25 – Highlights


The Federal Budget was announced on Wednesday with a commitment to continue the fiscal consolidation seen last year. Most of the targets are in line with IMF guideline which will help in getting long term financing facility.

While no major reforms were seen on the exports, energy and other sectors, many tax exemptions have been removed.

Government has adapted significant tax measures to get incremental tax revenues of PKR3.7 trillion, taking total FBR taxes to PKR12.97 trillion from current year estimated number of PKR9.25 trillion.

Including petroleum development levy (PDL) in tax revenues, the FBR tax to GDP ratio for FY25 is estimated to reach 11.5% from 9.62% in FY24. For last five years this has remained 9.7% of GDP. To recall, PDL used to be tax revenue till FY20.

Analysts believe, tax measures taken under this budget are quite balanced and less inflationary than expected, as earlier it was considered that government will increase GST by 1% etc. These measures will pave the way for IMF program, if approved from the parliament.

Overall budget aims to ensure primary surplus of 2% of GDP or PKR2.5 trillion (excluding provincial surplus 1% of GDP), which is in line with the IMF guidelines.

 Some of the key announcements from the budget are: 

GDP growth target

Government has set a GDP growth target of 3.6% for FY25 as against provisional GDP growth of 2.4% for FY24. Government expects Agriculture, Industrial and Services sector to grow by 2.0%, 4.4% and 4.1%, respectively during FY25.

Analysts believe, GDP target of 3.6% is achievable as industries has started reflecting V shaped recovery; LSM index in 3QFY24 has achieved growth of 1.47%. Approximately 50% of the subsectors have recovered and posted positive growth. Going forward, with the expected decline in interest rates, industrial growth target of 4.4% seems achievable. Services sector is also expected to grow 4.1% on the back of low base, expected recovery in industrial growth and subsequently in advances of the banks, the services sector is also expected to post more than 4% growth.

The total budget outlay is set at PKR18.87 trillion for FY25, up 25%.

Markup Expense

Markup expense is envisaged at PKR9.8 trillion, 18% higher than revised estimate for FY24. Surge in Markup expense is primarily due to increase in debt to finance fiscal deficit. This will take markup expense as % of tax revenues to 75% from 5 year average of 63%. Actual interest expense for FY25 may remain lower than projected numbers due to expected fall in interest rates.

Current Expenditure

Total Current Expenditures are estimated at PKR17.2 trillion for FY25, up 21% from revised estimates of FY24. Government has earmarked subsidies of PKR1.4 trillion as compared to revised estimates of PKR1.0 trillion for FY24.

Development Expenditure

Development expenditure is estimated at PKR3.8 trillion for FY25, up 58% YoY; within this, federal PSDP is kept at PKR1.5 trillion, up 80% from revised figure for FY24. In federal PSDP, 81% of the budget is diverted to existing projects, while only 19% is allocated for new projects.

Defense Expenditure

The Defense Expenditure has been set at PKR2.1 trillion for FY25, 14% higher as compared to PKR1.86 trillion for FY24.


FBR Tax Revenue target has been set at PKR12.97 trillion up 40% for estimated collection of PKR9.25 trillion for FY24. This is higher than average growth of 20% in last five years. Though the target is high, Government is likely to collect around PKR12 trillion based on the new tax measures. The balance numbers can be achieved through reduction in significant higher PSDP allocation.

The Non Tax Revenue target has been set at PKR4.8 trillion up 64% from last year’s revised estimate of PKR2.9 trillion, where the government has budgeted PKR1.3 trillion under petroleum development levy (PDL) up 33% from FY24 estimated number of PKR960 billion.

From State Bank, government has estimated dividends of PKR2.5 trillion, more than 157% higher than FY24 number of PKR972 billion. This seems to be higher than the governor state bank’s comment in analyst briefing on April 29, 2024 that SBP will provide over PKR2 trillion to the government next year.

Fiscal Deficit

The government has estimated a fiscal deficit at PKR7.3 trillion, 5.9% of GDP (6.8% excluding provincial surplus) for FY25 as compared to estimated Fiscal Deficit of PKR7.8 trillion, 7.4% of GDP (7.9% excluding provincial surplus) for FY24. This includes provincial surplus of PKR1.2 trillion in FY25 as compared to revised estimate of PKR539 billion for FY24.

Primary Balance

The government has primary surplus target of PKR2.5 trillion (2.0% of GDP) for FY25 as against estimated surplus of 0.4% for FY24. IMF estimates primary surplus of 0.4% of GDP for FY25 in its May 2024 report. Excluding provincial surplus, primary surplus would be 1% of GDP for FY25 and deficit of 0.13% for FY24.

Current Account

Interestingly government projects a Current Account Deficit of US$3.7 billion for FY25, which will be higher than FY24 as it is expected to be a year of surplus of US$100-200 million.

Taxation Measures

Government has relied on natural increase in Tax Revenues in line with estimated 17% increase in nominal GDP along with few of the following measures;

Increase in FED on cement by PKR1/kg to PKR3/kg. This will yield revenues of approximately PKR40 billion to Government.

Pensions reforms will save approximately PKR40 to PKR45 billion.

Capital gain tax for non filers is increased to 45%, while for the filers it is proposed uniform 15%.

Exporter (textile, IT, and rice etc) will be required to pay normal tax, earlier it was 1% full and final tax. This will help Government to collect extra PKR50 to PKR100 billion.

Tier one retailers of textile and leather will be required to pay 18% from 15%.

Standard sales tax of 18% on mobile phones will result in additional tax revenues of PKR50 to PKR100 billion.

Sales Tax exemptions granted to FATA/PATA are removed in phased manner. This will bring additional taxes of PKR10 to PKR20 billion.

Removal of exemption on custom duties on import of Hybrid vehicles and luxury electric vehicles.

No of slabs for salaried tax are reduced, while the maximum tax is proposed to be unchanged. However, for non salaried person, maximum slab is increased to 45%

Advance withholding tax on non filers Retailers, Wholesalers, and distributors is increased to 2.5% from current 1%.

Increase in PDL limit to PKR80 per liter (minimum PKR60) on HSD and MS oil. This will help government to collect around PKR350 billion.

Shabbir H. Kazmi

Shabbir H. Kazmi is an economic analyst from Pakistan. He has been writing for local and foreign publications for about quarter of a century. He maintains the blog ‘Geo Politics in South Asia and MENA’. He can be contacted at [email protected]

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