Pakistan Unveils Federal Budget for Fiscal Year 2024-25: Key Economic Shifts

Pakistan’s federal government has proposed its budget for the 2024-25 fiscal year, focusing on export-led growth, fiscal consolidation, and significant adjustments to the taxation structure. Finance Minister Muhammad Aurangzeb announced the plan, which includes a three-year freeze on provincial development allocations and targeted relief for the salaried class, as the administration seeks to stabilize an economy grappling with high inflation and limited fiscal space.

What are the primary changes to the tax structure?

The government is moving toward a strategy of broadening the tax base while offering relief to specific sectors. According to Ministry of Finance documents, the budget introduces a reduction in the super tax for businesses with annual incomes exceeding Rs500 million, lowering the rate from 10% to 8%. Furthermore, the super tax has been abolished for businesses earning between Rs150 million and Rs500 million. To encourage exports, the government has eliminated advance taxes for exporters and maintained the 0.25% Final Tax Regime (FTR) for the IT sector, a move supported by industry bodies like P@SHA.

How does the budget address inflation and the salaried class?

To mitigate the impact of persistent inflation, the government has announced a 7% increase in salaries and pensions for federal government employees. Finance Minister Aurangzeb stated that this benchmark was set based on the current inflation index. Additionally, the budget includes tax relief for lower-income salaried individuals by adjusting tax slabs. According to Minister of State for Finance Bilal Azhar Kiani, the government prioritized relief for those earning up to Rs2.2 million annually to help offset the rising cost of living.

What is the strategy for export-led growth?

The administration views exports as the primary engine for poverty reduction and economic stability. The Federal Board of Revenue (FBR) has indicated that the budget is designed to shift the country toward an export-oriented model, citing that local market saturation necessitates selling goods internationally. To support this, the government has proposed an additional Rs70 billion subsidy for the Export Refinement Scheme (EFS). Furthermore, customs and regulatory duties on essential agricultural and industrial equipment, such as tractors and combined harvesters, have been reduced to zero to promote value addition in the domestic economy.

How will the government manage public spending?

A central feature of the FY 2024-25 budget is the three-year freeze on provincial development allocations. Finance Minister Aurangzeb noted that this arrangement allows provinces to assist the federal government in meeting pressing needs, including defense spending. The government is also pushing for a shift toward Public-Private Partnership (PPP) models to fund infrastructure projects, arguing that this approach promotes private sector participation. Additionally, the administration is pursuing a “rightsizing” exercise, which includes plans to merge the Board of Investment (BoI) and the Special Investment Facilitation Council (SIFC) to create a more efficient “one-window” system for foreign investors.

Key Economic Targets for FY 2024-25

• IT Exports: Projected to reach $4.5 billion.
• Agri-Financing: Increased by 15% year-on-year, surpassing Rs2 trillion.
• Fiscal Discipline: Implementation of a new tax model utilizing automation and AI to minimize human intervention.
• Social Sector: Removal of taxes on contraceptives and sanitary products to address population growth and health concerns.

While the government maintains that these measures set the country on a path to economic progress, the effectiveness of the strategy depends on sustained macroeconomic stability. The finance minister acknowledged that external factors, such as the conflict in the Middle East, could impact oil prices and supply chains throughout the coming year, necessitating built-in fiscal redundancy.