Islamabad: Federal Government of Pakistan has unveiled its Federal Budget for the fiscal year 2025-26, prioritizing regional development and stimulating key economic sectors.
A notable allocation of PKR 164 billion has been committed to the uplift of Azad Jammu and Kashmir (AJK), Gilgit-Baltistan (GB), and the merged districts of Khyber Pakhtunkhwa (KP), reflecting a strategic push to integrate these regions more fully into the national development framework. Specifically, PKR 48 billion each has been earmarked for AJK and GB, while PKR 68 billion will be directed towards the merged districts of KP. These funds are part of the Public Sector Development Programme (PSDP), aimed at boosting infrastructure, services, and connectivity in historically underserved areas.
Alongside development funding, the budget proposes transformative tax reforms for the merged districts of KP and Balochistan. Longstanding tax exemptions in these areas are set to be phased out, a move the government frames as essential for expanding the country’s tax base and fulfilling commitments to international financial institutions like the IMF. A 10% sales tax on goods and transactions is expected to be introduced gradually, while the Federal Board of Revenue (FBR) plans to implement an 18% sales tax on goods manufactured in these regions starting July 1, 2025.
This policy shift marks a departure from years of tax relief and is anticipated to generate substantial government revenue, though it may provoke resistance from local stakeholders still grappling with early-stage economic development.
In a parallel effort to invigorate the property and real estate sectors, the government has announced sweeping tax incentives set to take effect from July 1. Withholding tax rates on property purchases are to be significantly reduced—lowering the current 4% rate to 2.5%, 3.5% to 2%, and 3% to 1.5%. Moreover, the controversial 7% Federal Excise Duty on the initial sale or allotment of properties, plots, and houses is proposed to be abolished. These changes aim to reduce transaction costs and stimulate market activity.
To promote homeownership, especially for middle-income families, the budget also introduces tax credits for buyers purchasing houses up to 10 marlas and flats up to 2,000 square feet. These proposals are seen as part of a broader policy initiative to ease the tax burden, support real estate-linked industries, and drive private investment in housing. The planned reforms have reportedly been aligned in principle with IMF expectations and await final parliamentary approval.
