The budget is framed as a shift from “stabilization to growth” under the IMF program, with a 4% GDP growth target, 8.2% inflation target, and 3.6% fiscal deficit target. Here’s how key sectors are affected:
Agriculture
- Growth target: 3.8% overall, with 3.6% in major crops, 2.5% in cotton ginning, 3.9% in livestock
- Impact: Recovery expected in crops and livestock. But exporters say the sector was “largely ignored” with no incentives for alternative energy to cut costs.
- Relief: Rs88 billion allocated under Export Refinance Scheme, reduction in minimum/advance taxes on exports. Export taxes retained though, and excluded from Fixed Tax Regime.
Industry & Manufacturing
- Growth target: Industrial sector 4%, Large-Scale Manufacturing 4.5%
- Impact: Super tax reduced for most sectors, boosting corporate profitability for nearly 216 listed non-financial companies. Tariff rationalization under National Tariff Policy 2025-30: customs duties and regulatory duties scaled back.
- Concerns: Business leaders say “no vision for manufacturing, export sectors”. Key issues remain: uncompetitive electricity tariffs, working capital strain from Sales Tax Third Schedule, delayed refunds. LCCI notes budget lacks roadmap for industrial growth and SMEs.
IT & Digital Economy
- Exports: IT exports hit $4.5bn this year with 20%+ YoY growth. Government expects IT and freelancing to be key drivers of export-led growth.
- Impact:
– 0.25% concessionary tax rate for IT exports extended to Tax Year 2029
– Advance tax on foreign card payments for software/cloud/SaaS cut from 5% to 0.5%
-10% tax credit for FBR System Integration to boost software vendors
– Income tax relief: 35% bracket threshold raised to Rs7 million
Construction & Real Estate
- Impact: Major focus for GDP growth and jobs. Withholding tax on property purchase cut from 2.5% to 1.25%, sales tax from 5.5% to 2.75%. Import taxes on construction machinery/logistics also reduced. This has been done as construction has linkages to cement, steel, glass and transport sectors and is seen as “quickest way to stimulate growth and employment”.
Energy, Water & Infrastructure
-Development spending: Rs754 billion estimated for federal ministries, with another estimate at Rs1,126 billion total.
– NHA: Rs 264 billion
– Power Division: Rs 91billion, plus Rs 135 billion for energy projects in other estimates
– Water Resources: Rs 179 billion
– Transport & Communications: Rs 408 billion
– Reforms: Competitive Trading Bilateral Contract Market in power sector operationalized. EV and solar prioritized to reduce import dependence.
Social Sector, Health & Education
- Education: HEC Rs 41billion, Rs187 billion for social sector total. Higher Education had nearly 80% utilization last year
- Health: National Health Services only utilized 33% of allocation last year. No major new health incentives announced.
- Jobs: Government targets 2 million jobs for FY-27
Exports & Trade
- Theme: “Export-led growth, Competitiveness, industrial expansion”
- Measures: Reduction in export withholding tax, tariff rationalization. But exporters say relief was “insufficient given overall tax burden”.
Banking sector
The budget didn’t announce big headline changes for banks, but a few moves will directly hit profitability, lending, and deposits:
Taxes & Profitability
- Super Tax cut: This is the biggest positive. Super tax on high-income companies was reduced for most sectors.
- No new withholding taxes on bank transactions announced. That’s a relief after past budgets adding taxes on cash withdrawals/non-filers.
- Lending & Growth Drivers: With focus on development spending on NHA, Power, Water and Construction, banks will see demand for project finance, corporate lending, and contractors’ working capital. There will be more mortgage and builder finance demand after WHT cut on property from 2.5% to 1.25%. The banks will also earn spreads under EFS scheme. With target setting of 4% GDP growth and 4.5% LSM growth, higher economic activity is expected which will resultantly create more credit demand.
- Government Borrowing & Liquidity: Government borrowing from banks is likely to stay high.
If government borrows more from banks, it crowds out private credit but gives banks risk-free returns via T-bills/PIBs
Digital & IT angle: IT exports $4.5 billion and 0.5% tax on foreign card payments means more FX inflows through banks. More digital payments and freelancing receipts will result in more deposit growth and fee income for banks
The impact of profitability will be neutral to positive if super tax cut includes banks. Otherwise corporates benefit more. Lending will increase in Construction, PSDP projects and exports sector. Deposits will also increase due to IT FX inflows, however, if oil prices continue to rise, fiscal deficit will widen putting pressure on government borrowing and inflation due to which monetary policy will be tightened. Further, delayed refunds from FBR will hurt corporate borrowers’ cash flows which may result in higher NPL risk for banks lending to exporters.
Overall the budget leans toward growth, formal documentation and export competitiveness. IT, construction, real estate and large corporates via super tax cut are major winners whereas agriculture and SMEs are clear losers. Development spending has risen but execution remains weak as last year only 68% of federal PSDP was utilized.