Pakistan’s 2025-26 Budget: Ex-Finance Ministers Urge Tax Reforms, Growth Strategy

Pakistan’s 2025-26 Budget: Ex-Finance Ministers Urge Tax Reforms, Growth Strategy

As Finance Minister Muhammad Aurangzeb prepares to present the 2025-26 budget, former finance ministers Asad Umar and Miftah Ismail have highlighted urgent reforms needed to address Pakistan’s fiscal crisis and stimulate growth.

Key Challenges in the Budget

  • Persistent fiscal deficits averaging over 6% of GDP, pushing Pakistan into a debt trap.

  • Declining development spending, down from 7% to 2% of GDP, stifling economic growth.

  • Tax evasion in under-taxed sectors like real estate and retail, exacerbating inequality.

  • Anti-export policies and inconsistent macroeconomic management hurting competitiveness.

Asad Umar’s Recommendations

1. Close Tax Loopholes

  • Crack down on real estate underreporting, a major avenue for wealth concealment.

  • Reverse excessive taxation on salaried professionals, which has driven capital flight.

2. Debt Restructuring & Fiscal Discipline

  • Interest payments now exceed defense spending by 4x—requiring debt restructuring to ease pressure.

  • Shift from domestic bank borrowing (97% of deficit financing) to external financing.

3. Boost Growth Through Exports & Agriculture

  • Align policies with high-value exports, following models like Vietnam’s economic transformation.

  • Support farmers by reducing input costs after a devastating agricultural slump.

Miftah Ismail’s Structural Reforms

1. Fix the NFC Award & Tax Inequality

  • Revise the NFC formula—provinces retain 60% of federal taxes while Islamabad runs deficits.

  • Tax agricultural income to reduce evasion by wealthy landlords.

2. Cut Wasteful Spending, Redirect Funds

  • Slash development spending from Rs 2,500bn to Rs 1,300bn, reallocating savings to:

    • Defense (amid rising India-Pakistan tensions).

    • Benazir Income Support Programme (BISP), raising its budget to Rs 1,500bn to combat poverty.

3. Pro-Growth Tax Policies

  • Scrap the 10% super tax on exporters, which penalizes competitiveness.

  • Reduce tariffs on solar equipment to encourage renewable energy adoption.

The Way Forward

Both ex-ministers agree: Pakistan’s budget must prioritize:
✅ Fair taxation (targeting elites, not the middle class).
✅ Debt sustainability (restructuring to free up fiscal space).
✅ Export-led growth (shifting from low-value to complex industries).

With IMF-mandated austerity looming, the government faces tough choices—but without structural reforms, Pakistan risks prolonged stagnation.

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