Government Set to Approve Rs1.1 Trillion Development Budget for FY2026-27

ISLAMABAD: The federal government is expected to approve a development outlay of approximately Rs1.126 trillion for the fiscal year 2026-27 during the National Economic Council (NEC) meeting scheduled for Monday, according to official sources.

The meeting, which will be chaired by Prime Minister Shehbaz Sharif, is expected to review and approve key economic targets and development priorities ahead of the presentation of the federal budget.

NEC to Review Development Spending Plans

Sources said the government is considering an increase of nearly Rs200 billion in the Public Sector Development Programme (PSDP), bringing the proposed federal development allocation to around Rs1.1 trillion.

The NEC meeting is expected to be attended by federal ministers, the chief ministers of all four provinces, representatives from Gilgit-Baltistan, and the prime minister of Azad Jammu and Kashmir (AJK).

Economic Survey and Budget Timeline

The Economic Survey for the outgoing fiscal year is likely to be presented on June 9, while the federal budget for FY2026-27 is scheduled to be unveiled on June 10.

Officials estimate the total federal budget outlay at approximately Rs17.1 trillion, reflecting the government’s fiscal priorities for the coming year.

Before the budget is presented in parliament, a special meeting of the federal cabinet will be held to approve the final budget proposals, including recommendations regarding salaries and pensions for government employees.

Salary and Pension Increase Under Consideration

The government is reportedly considering a salary and pension increase ranging between 7% and 10% for public sector employees. However, coalition partners have urged the government to approve a larger increase of up to 15% to help offset the impact of inflation on household incomes.

A final decision is expected before the budget announcement.

Key Economic Targets for FY2026-27

The government is expected to set a GDP growth target of 4.1% for the next fiscal year, while average inflation is projected at 8.4%.

Revenue collection targets have also been outlined, with tax revenues estimated at Rs15.267 trillion and non-tax revenues projected at Rs2.768 trillion.

The federal PSDP is expected to remain one of the government’s major spending priorities, with significant allocations planned for infrastructure and development projects.

Debt Servicing and Defense Remain Major Expenditures

According to budget proposals, debt servicing is expected to remain the largest expenditure item, with an allocation of Rs7.824 trillion.

Defense spending is projected at Rs2.665 trillion, while the petroleum levy collection target has been proposed at Rs1.727 trillion.

New Tax Measures Under Review

The upcoming budget is expected to introduce approximately Rs220 billion in additional tax measures to support revenue generation efforts.

Among the proposals under consideration is the inclusion of cryptocurrency transactions in the tax net. Officials are examining a capital gains tax ranging from 10% to 30% on digital asset transactions, along with amendments to the Income Tax Ordinance, including the proposed introduction of Section 37C.

The government is also considering withdrawing certain tax exemptions currently available in former tribal areas.

Retail and Trader Tax Reforms Proposed

Several consumer products, including infant formula, ghee, cooking oil, tea, sugar, and dry milk, may be brought under the third schedule of tax regulations, making retail price printing mandatory.

A new fixed tax scheme for traders is also under discussion. Under the proposal, businesses with annual sales of up to Rs200 million would pay a 1% tax rate and a fixed filing fee of Rs25,000. Traders participating in the scheme would be exempt from routine tax audits.

Climate Levy and EV Tax Exemptions

The government is further considering ending tax exemptions on electric vehicle (EV) Completely Knocked Down (CKD) kits from July 1, 2026.

In addition, the climate support levy on petroleum products may be doubled from Rs2.5 per litre to Rs5 per litre. Officials estimate the measure could generate more than Rs90 billion in additional revenue annually.

As the government finalizes its fiscal strategy, the NEC meeting and upcoming budget announcements are expected to provide a clearer picture of Pakistan’s economic direction for the next financial year.