As Pakistan braces for the announcement of the Federal Budget 2025-26, anticipation is high among government employees, economic analysts, and the general public. Amid rising inflation and fiscal pressures, the government appears set to introduce a range of measures aimed at easing the burden on salaried individuals, encouraging digital transactions, and broadening the tax base.
One of the most anticipated aspects of the budget is the expected salary increase for public sector employees, which has been the subject of heated discussion and widespread public demand.
Budget 2025-26 Salary Increase Government Employees Latest News
In the lead-up to the federal Budget 2025-26, political leaders have voiced differing views on the proposed salary increase for government employees. Pakistan Peoples Party (PPP) Chairman Bilawal Bhutto Zardari has called for a substantial 50% salary increase, emphasizing the need to cushion workers against rising inflation. In contrast, Prime Minister Shahbaz Sharif has proposed a more modest 10% salary increase, aligning with current fiscal limitations and IMF commitments. This divergence highlights the ongoing debate between economic realism and populist relief as the budget presentation approaches.
The increase in salaries and allowances is expected to be aligned with the prevailing inflation rate, which currently stands in the double digits. While the exact percentage of the raise has not been officially disclosed, employee unions have demanded a minimum monthly salary of Rs50,000, especially for lower-grade staff.
Protest Threats Loom Large
Several government employee unions have already declared their intention to stage a sit-in outside Parliament House on June 10, coinciding with the expected date of the budget presentation. These unions are calling for a meaningful raise that reflects the economic challenges faced by the working class.
Failure to meet these demands could lead to significant unrest, particularly among clerical, teaching, and healthcare staff who are already grappling with inadequate pay and rising utility costs.
Crackdown on Cash Transactions Proposed
In a parallel initiative aimed at fiscal reform and economic documentation, the government is planning to introduce a crackdown on cash transactions.
Key Proposals Include:
- Rs3 Extra Charge on Cash Fuel Purchases:
Fuel stations may be instructed to levy an additional Rs3 per liter on fuel purchases made in cash. The idea is to incentivize digital transactions and curb widespread underreporting of sales. - 2% Extra Tax on Cash Sales:
Manufacturers and importers could be granted permission to charge an extra 2% tax on cash-based sales, further discouraging undocumented transactions. - Additional Tax at Tier-1 Retailers:
Tier-1 retailers may be required to impose extra taxes on cash payments, though restaurants and hospitality sectors will remain exempt when digital payment methods are used. - Digital Infrastructure Mandate:
Petrol pumps and large retail outlets will be required to offer QR codes, debit/credit card terminals, and mobile wallet payment options, ensuring a smooth transition to digital commerce.
Despite the shift, customers may still opt to pay in cash, albeit after absorbing the additional tax burden.
No Tax Net Expansion for Certain Sectors
This has raised eyebrows among economists and tax justice advocates, who argue that untapped revenue potential continues to exist in these high-cash sectors.
Increased Taxes on Non-Filers and Savings
On the other hand, non-filers and passive savers are expected to face a more stringent tax regime:
Proposed Measures:
- Withholding Tax on Cash Withdrawals:
The current 0.6% cash withdrawal rate for non-filers may be increased to 1.2%, especially for daily withdrawals exceeding Rs50,000. - Higher Tax on Bank Deposits and Savings:
New tax rates are being considered for interest earnings on bank deposits and national savings schemes, especially for non-filers and those not registered under the Active Taxpayers List (ATL). - GST on Small Cars:
The General Sales Tax on vehicles under 800cc, previously taxed at 12.5%, is set to be increased to 18%, aligning it with the standard GST slab. - Capital Gains and Super Tax Revisions:
Adjustments are being proposed in capital gains tax structures, and a reduction in the super tax is under consideration—likely to attract more investment in large-scale industries and manufacturing.
Development and Investment Incentives
Despite the heavy tax proposals, the government appears committed to boosting development spending. A notable area of focus is infrastructure, energy transition, and public transport, including incentives for electric vehicles (EVs).
A five-year tax on fuel-based vehicles has been proposed to encourage the adoption of EVs, in line with environmental goals and energy security strategies.
Conclusion: A Balancing Act Between Relief and Revenue
The upcoming Budget 2025-26 reflects the government’s tightrope walk between providing relief to struggling citizens and raising revenue to meet IMF targets and developmental goals.
While the proposed salary increase for government employees will offer much-needed relief, the crackdown on cash transactions and harsher taxation on non-filers and savings suggest a significant shift toward a more digitally documented economy.