Budget 2025-26: Govt Targets Non-Filers with Heavy Taxes, Promises Record Development Spending

The federal government is preparing a bold fiscal plan for FY2025-26, combining aggressive tax enforcement with a significant increase in development expenditures. Official sources revealed that non-filers will face steep penalties, including a proposed doubling of the withholding tax on cash withdrawals — from the current 0.6% to 1.2%.

In a move to discourage undocumented transactions, authorities are also considering introducing new tax slabs for daily cash withdrawals exceeding Rs50,000.

Locally assembled small cars, typically under 800cc engine capacity, may see GST jump from 12.5% to 18%, making them costlier for average consumers. Additional levies are being explored on petrol and diesel vehicles. Changes in capital gains tax, profits taxation, and a possible reduction in super tax for large businesses are also under review.

Despite the fiscal tightening, the federal government is set to allocate over Rs1,000 billion for development, with Rs270 billion coming from foreign borrowing. Punjab leads the provinces with an ambitious Rs1,190 billion development plan, followed by Sindh (Rs887bn), KP (Rs440bn), and Balochistan (Rs280bn). Together, the provinces plan to borrow Rs802 billion from external lenders.

Economic indicators are expected to improve, with a GDP growth target of 4.2% and inflation forecast at 7.5%, reflecting optimism for a financial rebound. The budget, still in final stages, is expected to be announced later this month.