Petition for Fair and Equitable Budget Reforms in Pakistan on the basis of budget (2025 - 26)

To:
The Government of Pakistan

Subject:
Identification of Structural and Policy-Level Key Concerns in the Federal Budget 2025–26

Introduction

The Federal Budget 2025–26, presented by the Government of Pakistan, aims to stabilize the economy and improve fiscal discipline. While the budget introduces several reforms through amendments in taxation and financial policies, there are significant concerns regarding equity, fairness, and the distribution of economic burden. This petition highlights key structural Key Concerns that may disproportionately affect middle- and low-income groups and contribute to rising poverty levels.

Key Concern 1: Withdrawal of Pension Tax Exemptions

The Finance Act 2025 includes the omission of certain clauses from the Second Schedule of the Income Tax Ordinance that previously provided tax exemptions on pensions. These exemptions covered government pensions, family pensions, and commuted pension benefits.

The removal of these exemptions places an additional financial burden on retired individuals who are no longer earning a regular income. This policy change weakens social protection systems and affects vulnerable segments of society who rely on fixed incomes for their survival.

Key Concern 2: Heavy Dependence on Indirect Taxes

The budget continues to rely heavily on indirect taxes such as sales tax and federal excise duty. These taxes are applied equally to all citizens, regardless of income level.

This approach increases the financial burden on low- and middle-income groups, as they spend a larger portion of their income on basic goods and services. As a result, indirect taxation contributes to inflation and widens economic inequality.

Key Concern 3: Complexity in Tax Laws and Amendments

The Finance Act 2025 introduces numerous amendments across various tax laws, including the Income Tax Ordinance, Sales Tax Act, and Customs Act. These amendments involve multiple insertions, substitutions, and renumbering of clauses.

Such complexity makes it difficult for individuals and small businesses to understand and comply with tax regulations. Instead of simplifying the tax system, these changes increase confusion and reduce transparency.

Key Concern 4: Preferential Tax Exemptions for Selected Entities

The budget provides specific tax exemptions to certain international entities, including organizations associated with major events such as international sports tournaments.

While these exemptions aim to encourage global participation, they create inequality within the tax system. Local businesses continue to pay full taxes, while selected entities receive relief, leading to an imbalance in economic policy.

Key Concern 5: Extension of Tax Exemptions for Special Economic Zones

The government has extended tax exemptions for Special Economic Zones until 2035. These exemptions are intended to promote investment and industrial growth.

However, such long-term tax relief reduces government revenue and limits the availability of funds for essential public services. It also benefits specific sectors rather than addressing the broader needs of the population.

Key Concern 6: Increased Focus on Enforcement without Facilitation

The budget introduces stricter enforcement measures, including enhanced monitoring systems and increased penalties under customs and taxation laws.

While enforcement is important, the lack of supportive measures for businesses creates additional challenges. Small businesses and individuals may face increased compliance costs and operational difficulties, discouraging economic participation.

Key Concern 7: Limited Emphasis on Social Sector Development

Although the budget focuses on fiscal responsibility and debt management, there is limited visibility regarding increased investment in education, healthcare, and poverty reduction programs.

Insufficient allocation to these sectors can slow human development and limit opportunities for disadvantaged communities, ultimately contributing to the persistence of poverty.

Conclusion and Recommendations:

In light of the concerns outlined above, it is recommended that the government take the following actions:

i. Reduce Burden on Low- and Middle-Income Groups

• Lower sales tax on essential items like food, medicines, and school supplies
• Introduce targeted subsidies for low-income families
• Increase minimum wage in line with inflation

ii. Introduce Fair and Progressive Taxation

• Increase taxes on luxury goods and high-income groups
• Reduce indirect taxes that affect everyone equally
• Ensure all sectors (including large businesses) pay fair taxes

iii. Invest More in Education and Skills

• Increase budget for public schools and teacher training
• Provide free digital tools and internet for students
• Introduce skill-based programs (IT, vocational training)

iv. Support Small Businesses and Job Creation

• Provide low-interest loans for small businesses
• Reduce taxes for startups and local entrepreneurs
• Create job opportunities through community development projects

v. Control Inflation and Price Hikes

• Monitor prices of essential goods
• Prevent hoarding and unfair price increases
• Strengthen government regulation in markets

vi. Increase Transparency and Public Participation

• Make budget information simple and accessible for citizens
• Allow public feedback (including youth voices) before finalizing budgets
• Publish clear reports on where money is spent

vii. Invest in Community Development Projects

• Improve housing, sanitation, and clean water access
• Develop rural areas with better infrastructure
• Support local community initiatives

viii. Introduce Youth Voice in Budget Planning

• Create a “Youth Advisory Panel” for budget suggestions
• Include student ideas through schools and platforms
• Encourage civic participation at an early age

We believe that by implementing these recommendations, future budgets in Pakistan can become fairer, inclusive, and focused on reducing poverty while improving the quality of life for all citizens.