FY2026-27 budget: Senate seeks increase of income tax exemption threshold, reduction in electricity tariffs

ISLAMABAD: The Senate on Thursday adopted 123 recommendations regarding the federal budget for FY2026-27, seeking an increase in the income tax exemption threshold for low-income earners, a reduction in electricity bills and increased taxes on luxury assets.

A motion for this purpose was moved by Senate Standing Committee on Finance and Revenue Chairperson Saleem Mandviwalla.

The standing committee finalised the recommendations earlier in the day. The report was then laid before the Senate for adoption and would now be transmitted to the National Assembly (NA), as per the Constitution.

The NA will take up the recommendations before the final vote on the budget.

Senate’s recommendations include:

Increase in the income tax exemption threshold for low-income earners

Reduction in tax rates for salaried individuals affected by inflation

Rationalisation of 7.5 per cent to 8pc income tax deducted at source to function as simplified final tax regime

Expansion of targeted social protection programmes for vulnerable households

Reduction in general sales tax on essential food items, medicines, educational material and agricultural inputs

Avoidance of imposition of new taxes on basic necessities that disproportionately affect lower-income groups

Allocation of funds for reduction in electricity tariffs

Introduction of a transparent roadmap for reducing capacity payments and circular debt

Targeted subsidies for only low-consumption domestic electricity consumers and withdrawal of fixed charges, financing cost surcharge and GST on electricity bills

Provision of targeted subsidies for low-consumption domestic consumers

Reduction in taxes and duties on fertilisers, seeds, pesticides and agricultural machinery

Increase in allocations for water conservation and agricultural research

Increase in federal allocations for public hospitals and primary healthcare

Enhanced funding for higher education, scholarships and vocational training programmes

Publication of all tax exemptions and concessions granted to spectific sectors or entities

Set a requirement for periodic reporting to Parliament on public debt, circular debt and major public sector expenditures

Reduction in non-development expenditure where possible

Presentation of a medium-term refuction strategy before Parliament

Simplification of tax procedures for small- and medium-sized enterprises

Provision of concessional financing and incentives for employment-generating industries

Increase in allocations for flood protection, drought mitigation and climate-resilient infrastructure

NA reconsiders the proposed taxation measures on essential commodities and salaried class, and instead broaden the tax base by eliminating preferential exemptions, enhancing tax administration, and ensuring equitable taxation of undertaxed sectors, so as to protect ordinary citizens from further inflationary pressures

The climate support levy shall be kept separate from the petroleum levy and shall be utilised exclusivelty for decarbonisation efforts, combatting climate change impacts and environmental protection

Removal of additional witholding taxes collected through electricity bills from consumers who are already registered tax payers

Extension of tax incentives for IT exporters and freelancers for an additional 10 years

Increased taxation on luxury vehicles above 3,000cc, luxury properties and non-productive assets, as well as on high-end mobiles, imported chocolates, soft drinks, cosmetics, watches and jewellery

Creation of a dedicated federal transfer mechansim ensuring development funds are channelled directly to elected local governments

Introduction of comprehensive documentation and taxation measures for high-value retail, real estate speculation and non-filer luxury transations

Lithium-ion cells imported as raw material for local battery manufacturing be granted zero-rated status or substantial duty and tax relief be provided on them

Cutting advance tax on telecom services from 15pc to 8pc

At least 15pc increase in salaries and de-freezing of medical allowance for federal employees

Abolition of petroleum levy for motorcycle users

5pc-10pc luxury consumption levy on non-essential imports

Allocate minimum recurring budget of Rs130 billion for universities in FY2026-27, and raise it to Rs190bn by 2030-31

Reinstatement of 1pc final tax regime and sales tax refunds within 72 hours for exporters

Setting up a statutory National Disaster Risk Financing Fund for disaster management

Elaborating on these recommendations in the Senate, Mandviwalla noted that he was presenting the Senate Standing Committee on Finance and Revenue’s suggestions for the eighth consecutive budget.

He added, “We should avoid repeating the mistakes made every year.“

The PPP senator stressed the need for measures to put the country’s economy on the path to stability.

Mandviwalla also emphasised the need for measures to promote solar energy across the country.

He called for the abolition of taxes on transactions through credit cards and ATM cards, saying that they put “unnecessary burden” on consumers.

Further detailing the committees’ recommendations, he said a minimum of 15 per cent increase in salaries of government employees was suggested a reduction in taxes on food items and agriculture sector was proposed to provide relief to the public and support economic activity.

Expressing concern over social sector spending, he said allocations for health and education had been kept very low in the budget. He also noted that existing taxpayers were being further burdened instead of the tax base being broadened.

Mandviwalla said the committee’s report proposed several practical and effective recommendations aimed at improving the budget and addressing public concerns.

The Senate was given the responsibility to submit budget recommendations under the 18th Amendment in 2010. Under the constitution, the Senate has no power to vote on a money bill and this power exclusively lies with the National Assembly, which is the directly-elected house.

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