The Federal Budget for FY27 will be presented on June 10, 2026

The Federal Budget for FY27 will be presented on June 10, 2026. The estimated total outlay is Rs 17.1 trillion. The budget is expected to prioritize economic stabilization, with close guidance from the IMF.

GDP growth is projected at 4.0%, and the average inflation rate is 8-9% for FY27. The budget is expected to prioritize fiscal consolidation over populist measures.
Total tax revenue is projected at PKR 15.267 trillion, though achieving this target may be challenging given expected shortfalls in FY26. Non-tax revenue is estimated at PKR 2.768 trillion, with a petroleum levy target of PKR 1.727 trillion. On the expenditure side, debt servicing (interest payments) is projected at PKR 7.824 trillion, while defence spending is proposed at PKR 2.665 trillion. The federal PSDP (development) is expected to be PKR 1.1 trillion.
It is expected that most sales tax and income tax exemptions expiring on June 30, 2026, will not be extended. From July 1, 2026, taxable items will include income from erstwhile Tribal Areas (Khyber Pakhtunkhwa and Balochistan), electric vehicles (CKD, locally assembled, and CBU), hybrid electric vehicles, electricity supply to tribal areas, and locally produced silos. Additionally, sales tax on imports and supplies for FATA/PATA is projected to increase gradually from 10% to 12% during FY27.
It is reportedly under consideration that the government may reduce or abolish the Federal Excise Duty (FED) on fruit juices in the upcoming budget, following concerns that the existing FED structure has become counterproductive. A 20% FED was imposed on packaged juices; it hit the demand for fruit juices. A proposed compromise under review includes reducing FED on existing variants from 20% to 10%, while granting a complete FED exemption to a new no-added-sucrose or white-sugar category.
The government is expected to consider a 7-10% increase in salaries and pensions for federal employees, while some relief for the salaried class has been indicated, any such measures are expected to be limited due to tight fiscal constraints.
The government is not expected to extend most sales tax and income tax exemptions beyond June 30, 2026. Therefore, it is proposed that from July 1, 2026, all such goods, items, areas, and inputs will become taxable at normal rates.
Based on government commitments with the IMF, the FY27 budget is expected to resolve circular debt (CD) by finalizing deals with all remaining IPPs by June 2026 and settling the K-Electric dispute by Sep’26. These steps are projected to lower the end-FY27 gross CD flow to PKR300bn, with a goal of net zero by FY31. The FY27 budget is expected to cap power subsidies at Rs830 billion, while the gas sector will rely on semi-annual tariff adjustments and a new CD Management Plan by July 2026. Against a total CD stock of Rs5.206 trillion (as of early 2026), actual outcomes remain contingent on timely execution.

Courtesy- AL Habib Capital Markets