Budget 2026-27 sparks public concerns over new taxes and inflation

Updated: 8:42 AM PKT — June 2, 2026

Pakistan’s annual inflation rate surged to 11.66% in May 2026, marking a 23-month high, according to the latest data from the Bureau of Statistics. The month-on-month inflation rate saw an increase of 0.52% compared to April. The rise was driven by price hikes in essential food items including wheat flour, meat, milk products, cooking oil, and potatoes.

On an annual basis, urban inflation was recorded at 11.79% while rural inflation stood at 11.48%. The report noted that prices for some items, such as tomatoes, fresh vegetables, and eggs, saw a decrease during the same period.

Updated: 8:09 AM PKT — June 2, 2026

The government has unveiled a record Rs4.715 trillion national development programme for the upcoming fiscal year, underpinned by a federal Public Sector Development Programme (PSDP) of Rs1.126 trillion. The plan is significantly bolstered by a Rs3.138 trillion contribution from provincial development plans and a 27% increase in allocations by state-owned entities. The government has set an economic growth target of 4% and aims to keep inflation at 8.2%.

Despite the record size of the overall plan, Planning and Development Minister Ahsan Iqbal expressed deep concern over the federal PSDP allocation, terming the shortfall a “new circular debt crisis.” He noted that the Rs1.126 trillion provided by the finance ministry, under tight IMF restrictions, is drastically short of the Rs4.1 trillion required for roughly 800 ongoing projects. Consequently, over 98% of the limited federal resources will be directed towards ongoing schemes, with priority given to high-impact infrastructure projects nearing completion.

Updated: 7:38 AM PKT — June 2, 2026

As anticipation for the federal budget grows, Pakistan’s agricultural sector is voicing significant apprehension, citing existential threats from inconsistent government policies. Farmers and experts are calling for a clear, long-term strategy, pointing to recent chaotic reversals in wheat procurement as ruinous for growers. Demands are also being made for a new pricing commission to ensure a 25% profit margin over production costs, with warnings that farming is no longer economically viable under the current mix of deregulated input costs and controlled output prices.

Beyond immediate economic pressures, the sector is grappling with deep-rooted structural issues and a critical water crisis. Experts have highlighted the need for solutions like cluster farming and machinery rental centers to support small, fragmented landholdings. Compounding these challenges is a severe water shortage, with the irrigation system stretched far beyond its original capacity and crucial water projects receiving less than 10% of the required annual funding, a situation experts warn is being dangerously exacerbated by climate change.

Updated: 5:06 AM PKT — June 2, 2026

Business leaders have expressed deep concern over the upcoming federal budget for the fiscal year 2026-27, warning that measures formulated under stringent IMF conditions could create further difficulties for industries and the public. Critics argue that proposals, including a revenue target of Rs 17.1 trillion and increases in sales tax and petroleum levies, will once again place the entire burden on existing taxpayers and risk paralyzing business activity.

Instead of these measures, industry representatives are urging the government to shift towards a sustainable, growth-oriented path. Key recommendations include broadening the tax net to include untaxed sectors like agriculture and retail, gradually reducing the General Sales Tax (GST) to a single-digit rate, and simplifying tax laws. They also called for linking the Public Sector Development Programme (PSDP) to productive sectors such as IT and manufacturing to generate employment and reduce dependence on external borrowing.

Updated: 10:29 PM PKT — June 1, 2026

Prime Minister Shehbaz Sharif has assured business leaders that the forthcoming federal budget, scheduled for announcement on June 5, will be conducive to industrial growth. The government is expected to approve a national development programme exceeding Rs3.5 trillion, with a macroeconomic framework targeting 4.1% economic growth and 8.5% inflation for the 2026-27 fiscal year. During a meeting with chamber of commerce presidents, the prime minister directed the Federal Board of Revenue to clear all pending tax refunds by June 15 and ordered the relocation of Pakistan Revenue Automation Limited’s headquarters to Karachi to facilitate exporters.

These developments come as the government highlights a new era in economic partnership with China, following the signing of 207 Memoranda of Understanding worth approximately $7.54 billion between private companies from both nations. The agreements span sectors including artificial intelligence, mobile phone manufacturing, biotechnology, and modern agriculture. The prime minister will personally chair monthly meetings to review progress on these agreements. Separately, the Federation of Pakistan Chambers of Commerce and Industry has released its own ‘shadow’ policy studies proposing an alternative economic framework.

Updated: 9:59 PM PKT — June 1, 2026

As discussions around the Federal Budget 2026-27 continue, Pakistan’s freelance community has called on the government to extend the reduced 0.25% tax rate on foreign exchange earnings for the next decade. The Pakistan Freelancers Association (PAFLA) argued that maintaining this tax regime is crucial for encouraging digital workers to use formal banking channels, thereby increasing documented foreign remittances, which surged by 49% to $959 million in the first ten months of the fiscal year.

The association warned that introducing more complex tax structures could push freelancers towards informal payment methods, undermining foreign exchange reserves. In addition to tax relief, the group proposed government investment in capacity-building programs and the development of a national payment gateway to support the country’s estimated three million freelancers.