Finance Minister Muhammad Aurangzeb on Wednesday said lower government expenditures in the outgoing fiscal year were a “response” to previous “right pushback” from tax-paying individuals.
He made the remarks during a post-budget press conference where he expanded upon the federal budget proposed yesterday for the upcoming FY25-26.
Maintaining an aggressive stance on fiscal consolidation, as required by the International Monetary Fund (IMF), Aurangzeb yesterday still managed to offer some notional relief to the salaried class in the federal budget for FY2025-26, along with incentives for the real estate and construction sectors to revive the struggling industrial sector and stimulate economic growth.
Highlights:
Addressing a media briefing in Islamabad today, Aurangzeb acknowledged that past concerns about government expenditures not reducing were the “right pushback”.
However, in the outgoing fiscal year, the minister said the spending had gone up by “just 1.9pc”.
“We have reduced subsidies and debt-servicing costs, and increased some expenditures because this country needed those. But this is our response to those people who are paying taxes in this country that ‘why are you not bringing the government expenditures under control’,” Aurangzeb asserted.
He pointed out that whatever the government was giving was doing so “by taking loans as we start with a deficit”, adding that if the expenditures were not reduced, then the loans would keep surging.
At the outset of the press conference, the reporters voiced their concerns about not being given a technical briefing yesterday by the Federal Board of Revenue (FRB) on the Finance Bill 2025, which details the legislation for the proposed measures under the budget.
Subsequently, they walked out of the conference room in protest.
However, flanked by FBR Chairman Rashid Mahmood Langrial and Finance Secretary Imdadullah Bosal, Aurangzeb soon continued with his press conference in the presence of some journalists.
Concluding his address, Aurangzeb acknowledged the “worry” caused to reporters and said he “regretted if there was anything of the sort”, referring to the journalists not being briefed.
However, the minister added, he and the FBR chairman “had been appearing before you in terms of having these types of discussions”. “We will continue to accelerate this,” he affirmed, hinting at a plan of engagements with journalists every four to six weeks.
Addressing journalist Mehtab Haider, who spearheaded the journalists’ concerns, Langrial acknowledged that there used to be a “technical briefing” but this time it was decided that Aurangzeb would hold an “essential briefing”.
“Its name is technical briefing but practically, the same questions are raised during it, […] which makes the ministerial press conference slightly less meaningful.
“But if you want, we would hold a separate technical session with you,” the FBR chairman told the journalists.
‘Salaries and pensions linked with slower inflation’
On salaries and pensions for federal employees, which have been raised by 10pc and 7pc, respectively, the finance czar stressed the need for a benchmark.
“If we are saying the inflation is declining, similarly, the salary or pension has to be benchmarked with inflation. This is not just the rule in Pakistan but across the world.”
The minister also pointed out the connection between pay and inflation when asked why the minimum wage of Rs37,000 was not to be increased in the upcoming year.
“Go to the industries and get their feedback on minimum wage. I think we are in a good place,” he asserted.
Echoing his remarks from yesterday, Aurangzeb stressed that the government tried to give relief “as much as possible” while considering the fiscal space. He also pointed out the 0.5pc reduction in super tax for the corporate sector.
‘Not taxing fertilisers, pesticides negotiated with IMF’
Detailing the measures proposed for property buyers and sellers, Aurangzeb said: “Selling side still gets capital gains but the buying side should get some relief.”
The minister also termed the mortgage financing “as important as the fiscal side of things and what we have to do on the taxation side”.
Speaking on the agricultural sector, Aurangzeb said an additional tax on fertilisers and pesticides was a “benchmark” but it was negotiated with the IMF on the directions of Prime Minister Shehbaz Sharif as it was a “critical input into agriculture” and should not be imposed.
“Again, this is a step in the right direction”, the minister asserted.
The finance czar acknowledged that additional taxes and measures were also talked about last year. “We had to impose those as when we were speaking to international institutions, they were not agreeing with our stance that there can be enforcement in this country,” he said.
Responding to a query, Aurangzeb underscored the need to reduce the role of the middleman in the agricultural sector and increase the financing for small farmers. “It is very critical […] that we have a policy in the devolved subjects.”
He noted that the relevant measures were underway, hence the growth target was decided considering that.
Expressing the aim to reach a tax-to-GDP ratio of 10.9pc by the next year, the minister said additional taxes were around Rs312 million of the total 2.2 trillion target.
“We have two ways — either we ensure enforcement or we introduce additional measures of up to Rs400 billion to Rs500bn. This is why we will go to the parliament to help us out with the enabling amendments and legislation.”
The minister added: “We have laws, legislation and taxes but we were not able to enforce them, so in this fiscal year, we have worked on enforcement, which has exceeded Rs400bn.”
‘NA, Senate heads’ salaries hiked after 9 years’
Asked about a recent increase in the salaries of the Senate chairman and the National Assembly speaker, the minister claimed that the last time their salaries were “adjusted” was in 2016.
He emphasised that the hike was “all of a sudden” as it had not been done for the past nine years.
Responding to a question on how the federal government could delink the statistic of population from the National Finance Commission (NFC) award, Aurangzeb asserted, “Everything will be done in consultation with provinces.”
He added, “Nothing will be done [without them], including the national fiscal pact which we signed with the provinces.”
The provinces are projected to receive a record Rs8.2tr from the federal divisible tax pool in the upcoming fiscal year.
The minister also acknowledged a lack of implementation in suggested measures: “Over the past 10 years, I’ve been looking at the state of economy, first in the private sector and now in this job. I have never seen anything going up go downwards.
“I could be wrong; maybe it might have happened in some year,” he added. “It starts with acknowledgement, the undue burden that we had, as the prime minister has said before as well,” Aurangzeb said.
“The things that had never been reversed before have now been put into reversal, but that’s not the eventual end state,” the finance czar highlighted.
He made it clear that the segments that have been under undue burden, “whether it’s the formal sector, the beneficiary sector, the salaried class”, the government should at least give a signal that it was “serious”. “This is just signalling in my perspective from the right direction,” the finance minister said.
Digital economy, energy and tariff reforms
FBR Inland Revenue member Dr Najeeb Ahmad took the floor to answer some questions on sales tax, specifically on cosmetic items, and the digital economy.
Noting that electrical goods were found to be the high-value retail items sold on e-commerce platforms, Dr Ahmad explained that the tax rate for items worth below Rs20,000 was kept at 0.25pc as per the industry input, as sellers with goods valued above Rs200,000 were already keeping a 1pc-1.5pc profit margin.
The FBR official added: “In boutiques where people buy high-value clothes ranging from Rs15,000 to Rs18,000, their profit margin in such cases usually is 10pc, 15pc or 20pc, but we have set the tax rate for that at 2pc.”
Najeeb noted that grocery items had lower profit margins but naturally were taxed at a higher rate than electrical goods. “We did not follow previous policies that everyone should suffer under the same category,” he emphasised.
Dr Ahmad highlighted that previously, sales tax was charged on delivery orders through online platforms in the form of cash payment but was not filed.
“Not only is our local economy transforming digitally but the global digital framework is also changing, in which Pakistan’s sales tax right is eroding,” he noted, explaining that vendors in other countries evaded taxes by categorising them as exports.
Aurangzeb noted that the government had taken two “very concrete measures” to bring the cash-based economy of Rs9.4tr or more towards documentation.
Asked what the youth was being offered under the proposed budget, the minister underscored the need for the government to provide an “enabling environment for the youth”.
Noting that freelancers earned $400m last year, he said it was important to provide them with education.
“The coders are now earning $8 to 10 per hour; we hope they reach $100 per hour rate,” he said, urging the private sector to lead that goal.
Answering a query on circular debt, FBR chairman Langrial highlighted the revisions last year for power firms’ contracts. He stated that the power sector wanted “major reforms toward cheap credit and an enabling environment”.
When asked about the rationale for applying an 18pc sales tax on imported solar panels, Langrial explained that they came in two forms: assembled and less assembled.
“The one which added value in Pakistan already had an 18pc tax rate. The assembled one from abroad did not, so the local assembly was at a disadvantage.
“We also closed the door for future local assembling, so this was not an option and we have to create a level playing field,” the FBR chairman said, asserting that incentives were unimportant now that the technology had become cheaper.
“The payback period was two years, so we are ending these anomalies.”
Aurangzeb also reiterated the significance of tariff reforms under the five-year National Tariff Policy, which was approved by the government last month.
“People ask us that the revenue will decline but if we have to take this country forward towards an export-led discussion […] I want to go into the details of the steps we have taken,” he said.
The minister noted that additional customs duties were removed in four “lines”, while they were reduced in 2,700 tariff lines, which were “directly linked with those raw materials on the basis of which exporters will benefit”.
He stressed these measures were just for the upcoming year and more will be taken gradually.
Expanding further on the topic while answering a query. Aurangzeb said: “This is an East Asia moment for Pakistan. Whatever was available in the fiscal space is the direction of travel. We have tried to reduce tariffs. This is not the eventual end state.”
Asked about local investment and lack of incentives, Aurangzeb highlighted the “need to end protectionism, increase productivity [and] reduce the price of raw materials so that not only textile but every industry exporting benefits”.
Responding to a question on bond repayments, the finance czar stated that the first instalment of Eurobonds worth $500m was due in September, while the next was due in March. “We are prepared and willing to pay.”
The minister reiterated his hopes of Pakistan launching yuan-denominated Panda bonds this year, adding that credit enhancement through the Asian Development Bank and the Asian Infrastructure Investment Bank was in progress.
“As the international credit rating improves, we want to access the euro and US dollar market, which is expected in 2026, but certainly not this calendar year,” Aurangzeb said.
Miftah Ismail lambastes lack of reforms, inadequate relief measures
On the other hand, former finance minister Miftah Ismail lambasted the proposed budget for lack of reforms and inadequate relief measures despite having a “good space to do so”.
Speaking on Geo News today, Ismail said: “I don’t see anything on the budget through which you (government) will take the country towards growth. You could have brought reforms this time according to the country’s requirements; you had such good space to do so.”
He went on to list that international oil prices were low, the country’s current account was in control and had its IMF programme in place, and commodities across the globe were cheaper.
Ismail, who resigned as the finance minister in September 2022 and launched a new political party last year, referred to the 2.8pc growth rate in the outgoing year and claimed “anyone could bring such numbers if they have to bring it just on paper through wrong forecasting”.
On the relief measures for the salaried class, Ismail called it a “joke” with the people.
Using an example of a person with an annual salary of Rs800,000, he said the person was previously liable to pay Rs218,750 in taxes and would now only save Rs7,000 in taxes.
Ismail stated that the education crisis in Pakistan and the high unemployment rate were among the reasons the government should have given some relief to the people.
The finance expert also criticised the “meagre” reduction in the super tax for companies from 10pc to 9.5pc, explaining that they already pay 29pc corporate tax, 15pc dividend tax and 5pc workers’ welfare profit fund.
“You (the government) overspent last year as well,” Miftah said, noting that the civil administration expenditure was recorded at Rs971bn this year despite the government itself highlighting slower inflation.
“Neither you reduced expenditure in PSDP, nor in the current account, nor have you reduced subsidies for power and other sectors,” he said.
