The federal budget for the fiscal year 2025-26 is set to include significant tax increases on bank deposits, savings schemes, and cash withdrawals by non-filers, alongside a boost in development spending.

According to official sources familiar with the matter, work is actively underway on a range of tax proposals that include a significant increase in the withholding tax on cash withdrawals by non-filers.

The rate, currently set at 0.6 per cent, is expected to double to 1.2pc. Additionally, a new tax slab is under consideration for daily withdrawals exceeding Rs50,000, aiming to discourage large cash transactions and promote documentation of the economy.

Tax authorities are also mulling an increase in the General Sales Tax (GST) on locally manufactured vehicles, particularly those with engine capacities under 800cc — a category previously considered more affordable for the average consumer. The GST rate on these vehicles is likely to rise from 12.5pc to 18pc, aligning them with the broader tax regime.

Further proposals include imposing levies on petrol and diesel-run vehicles, revising taxes on capital gains and profits, and adjusting the super tax. Notably, the government is also contemplating a reduction in the super tax rate, a move likely intended to ease the burden on large-scale industries and encourage investment.

Development focus

Despite the tightening tax regime, the government plans to significantly boost development expenditure. The federal government is expected to allocate over Rs1,000 billion towards development projects in the next fiscal year. This includes borrowing Rs270bn from foreign sources to finance these initiatives.

Provincial governments are also preparing for an expanded development footprint. Punjab has announced an ambitious development outlay of Rs1,190bn, the highest among all provinces. Sindh’s development programme is pegged at Rs887bn, followed by Khyber Pakhtunkhwa at Rs440bn and Balochistan at Rs280bn. Collectively, the four provinces are projected to borrow Rs802bn from foreign lenders for their respective development needs.

In total, provinces will spend Rs609bn more than they did in the current fiscal year, marking a considerable increase in regional development ambitions.

Economic targets

In a bid to project economic recovery, the government is expected to set the GDP growth target at 4.2pc for FY2025 — a significant increase from the 2.68pc growth recorded this year, which fell short of the 3.6pc target. Meanwhile, the inflation target for the upcoming year is proposed to be set at 7.5pc, down from current double-digit levels that have eroded household purchasing power.

The budget proposals, which are still being finalised, reflect the government’s attempt to strike a delicate balance between revenue generation, inflation control, and economic stimulus. The final budget is expected to be unveiled later this month.