Dr. Ikramul Haq & Abdul Rauf Shakoori
The federal budget for fiscal year (FY) 2025-26, scheduled for June 10, 2025, is not just another fiscal exercise; it is being seen by the public as a litmus test for the government’s commitment to economic justice, institutional reform, and strategic clarity. The nation, reeling from years of fiscal tightening, stagnating incomes, and rising costs, expects the government to deliver a people centric budget that corrects structural distortions rather than reinforcing them.
The middle- and low-income groups, especially, are looking closely, hoping that this year’s budget will bring more than rhetorical promises. The public anticipates measures that address core issues such as inflation, employment, taxation fairness, and energy affordability, while creating a transparent path to sustainable growth. Yet, what has emerged from early disclosures of the Finance Bill 2025 is a mixture of conventional revenue-centric policies and over-ambitious development targets lacking credible reform roadmaps.
The Federal Board of Revenue (FBR) has nearly finalized taxation measures worth Rs. 200 billion through General Sales Tax (GST) and Federal Excise Duty (FED), according to official sources. The most controversial among these is the proposal to impose an 18 percent GST on the import of solar panels.
At a time when the country faces crippling energy shortages, inconsistent power supply, and rising electricity bills, taxing clean energy solutions signals a policy misalignment that undermines both sustainability and affordability goals. Instead of incentivizing the public’s shift toward renewable energy, the government seems more focused on squeezing additional revenue from a struggling populace. Similarly, extending an 18 percent GST to e-commerce will hamper digital entrepreneurship, a sector which has shown resilience and potential during recent economic downturns.
The abolition of ‘further sales tax’ of four percent on unregistered taxpayers initially seems like a step toward simplification, but in the absence of a strong enforcement mechanism for expanding the tax net, it may actually reward non-compliance. Meanwhile, the removal of several items from the Sixth and Eighth Schedules to the Sales Tax Act indicates the government’s intent to withdraw exemptions that had offered partial protection to essential goods. Although the inclusion of some cancer related equipment and life-saving drugs in the exemption list is a welcome move, it does not offset the overall regressive nature of the broader taxation strategy.
The introduction of FED on ultra-processed foods such as frozen foods, carbonated drinks, and instant noodles may be justified from a health policy perspective, but the absence of broader nutritional or educational interventions renders it another revenue-centric measure masked as reform.
Furthermore, adding luxury items like imported chocolates and coffee to the Third Schedule to the Sales Tax Act, 1990 subjecting them to taxation based on printed retail price demonstrates a limited and tokenistic approach to progressive taxation. These measures do not address Pakistan’s most pressing fiscal need, direct taxation of wealth, real estate, and high-income segments.
The FBR’s decision to extend 18 percent GST to goods manufactured in erstwhile tribal areas also deserves scrutiny. These regions have only recently been integrated into the national fold and continue to face socio-economic marginalization. Burdening their fledgling economies with steep taxation could hamper both industrial development and local employment. The expansion of the sales tax regime to services within Islamabad Capital Territory, while logical in theory, also risks uneven enforcement without the institutional strengthening needed for its execution.
The Planning Ministry, on the other hand, is projecting ambitious growth targets, an annual GDP growth of 4.2 percent for FY 2025-26 and a climb to 6 percent by FY 2028-29. The agriculture sector is expected to grow by 4.5 percent next year, followed by the industry at 4.3 percent and services at 4 percent. On paper, these projections reflect a nation preparing for an economic turnaround. Yet, the skepticism remains strong. The assumptions behind these targets are not accompanied by clearly articulated policy shifts, institutional reforms, or accountability frameworks. Furthermore, the total national development outlay of Rs4.083 trillion for FY26, while historic in size raises concerns about implementation capacity and prioritization.
The minister’s claim that a Rs. 4 trillion development portfolio was prepared in just the second year of a five-year term originally planned for FY 2028-29 may suggest efficiency. But it also hints at possible frontloading without considering institutional absorptive capacity. The same documents propose an increase in national investment from 13.8 percent of GDP in 2025 to 17 percent in 2029, with public sector investment only slightly rising from 2.9 to 3.7 percent over the same period. Most of the burden is expected to be borne by the private sector. Yet, given current investor sentiment, weak regulatory enforcement, and political uncertainty, such expectations seem aspirational at best.
The government’s narrative does point to some improvements. The sharp drop in headline inflation to 3.5 percent in May 2025 from 11.8 percent a year ago is notable. Similarly, foreign remittances have jumped from US$27 billion to US$37 billion over three years, and the country has posted a US$1.9 billion current account surplus between July and April—an encouraging reversal from last year’s US$1.3 billion deficit. But the reliance on remittances, a factor largely outside of domestic policymaking, and the absence of significant export diversification or industrial policy weaken the structural integrity of this growth.
The government’s long-term goal to transform Pakistan into a US$1 trillion economy by 2035 may excite headlines, but fails to consider Pakistan’s institutional, political, and governance constraints. Without judicial reforms, civil service modernization, digitization of governance, and decentralization of authority, these targets are little more than projections devoid of practical scaffolding.
Institutional voices have already begun sounding alarms. The Supreme Court Bar Association of Pakistan (SCBAP) expressed grave concern over the allocation of vast sums for non-developmental schemes in the budget. Their criticism focuses on the potential misuse of funds, corruption risk, and absence of fiscal prioritization.
The increase in public borrowing, substantially higher than previous years, raises long-term solvency concerns. The SCBAP’s particular condemnation of the recent 50 percent increase in motorway tolls is emblematic of the larger disconnect between policy elites and ground realities. These toll hikes, effective from June 15, 2025 for vehicles without M-Tag or with low balances, disproportionately affect middle-class commuters and transporters, exacerbating public resentment.
The fact that such a sensitive economic decision comes under a ministry led by a property businessman, as pointed out by SCBAP, rather than a seasoned policymaker, symbolizes deeper governance challenges. The ministry’s decision to raise tolls, instead of correcting inefficiencies within the National Highway Authority (NHA), reflects a lack of empathy and technocratic planning. Such measures further alienate the public, especially when taken in parallel with rising indirect taxes and limited-service delivery improvement.
The challenge before the government is not just to balance books or impress international lenders. It is to re-engineer the entire fiscal and economic framework in a way that aligns with equity, justice, and long-term productivity. The current approach, heavily tilted toward taxation without reform, targets consumer spending but spares structural inefficiencies and elite privileges. The lack of direct taxation reform especially in real estate, agricultural income, and undocumented wealth remains the budget’s greatest omission.
The FY 2025-26 could be pivotal. If the government uses this opportunity to build credibility, reform tax administration, reduce wastage, and make development spending transparent and targeted, it could begin to restore public confidence. But if it persists with half-measures, short-term revenue grabs, and over-reliance on remittances and external borrowing, it will only deepen existing structural vulnerabilities. The citizens of Pakistan are not just passive observers. They are stakeholders whose livelihoods depend on the soundness, fairness, and execution of this budget. The upcoming announcement must reflect that reality not just in words, but in numbers, allocations, and institutional accountability.
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Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He holds LLD in tax laws with specialization in transfer pricing.
He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner. He studied journalism, English literature and law. He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).
He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).
He is author of Commentary on Avoidance of Double Taxation Agreements, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).
He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.
X (formerly Twitter): DrIkramulHaq
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Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).
Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to insure knowledge transfer.
His notable publications are: Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan and Rauf’s Research on Labour Laws and Income Tax and others.
His articles include: Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF secretariat and Financial Monitoring Unit. The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge, Countering corrupt practices .
X (formerly Twitter): Adbul Rauf Shakoori
The recent publication, coauthored by these writes is
Pakistan Tackling FATF: Challenges & Solutions, available at:
https://aacp.com.pk/book-detail/pakistan-tackling-fatf-challenges-and-solutions-35
https://www.amazon.com/dp/B08RXH8W46