IMF-driven budget brings painful taxes for most Pakistanis as military spending soars 20%.

Pakistan’s government has unveiled its 2025-26 budget, leaving ordinary citizens bracing for financial strain while the military enjoys a hefty funding boost.

Finance Minister Muhammad Aurangzeb delivered the tough budget on Wednesday, announcing a wave of new taxes and increases aimed at meeting conditions set by the International Monetary Fund (IMF). At the same time, military spending will rise by a staggering 20 per cent.

Despite the military’s generous increase, total government expenditure is set to fall by 7 percent under the IMF’s austerity blueprint. For many Pakistanis, the real cost lies in the extensive tax hikes scattered across daily essentials, savings, pensions, and investments.

A major blow comes in the form of a new 2.5 per cent carbon tax slapped on every litre of petrol, diesel and furnace oil. This move will directly hit transport, power generation and household fuel costs.

Savings will also take a hit. Aurangzeb announced that the tax on interest income will rise from 15 per cent to 20 per cent, a change likely to discourage savings at a time when inflation continues to squeeze household budgets.

Pensioners are not spared either. Under the new rules, those under 70 drawing pensions exceeding Rs 10 million annually will face a 5 per cent tax — a levy introduced for the first time on high pension incomes.

Cash transactions will come under tighter scrutiny too. Non-filers of income tax returns will now pay 1 per cent advance tax on all cash withdrawals, up from the previous 0.6 per cent rate.

Imported solar panels, once seen as a solution to the country’s chronic power shortages, will now attract an 18 per cent tax, making green energy solutions more expensive for households and businesses.

In addition to these sweeping tax measures, Aurangzeb declared the gradual elimination of long-standing tax exemptions for tribal regions, impacting areas of Khyber Pakhtunkhwa and Balochistan where special fiscal arrangements have historically applied.

While millions of Pakistanis face these fresh financial burdens, the salaried class receives a modest reprieve. Aurangzeb offered minor tax cuts and incentives for the construction sector. However, these benefits are limited, affecting only a small fraction of the population, while the wider tax hikes will touch nearly everyone.

Defending the budget, Aurangzeb called it the beginning of fundamental economic reform. “Our budget strategy is to change the economy’s DNA by bringing basic changes,” he stated, emphasising plans to grow exports, boost foreign currency reserves, and shield the economy from future balance of payments crises.

Prime Minister Shehbaz Sharif, meanwhile, used the occasion to frame the budget as part of Pakistan’s long-term rivalry with India. “After defeating India in a conventional war, now we have to surpass it in the economic field,” Sharif declared. His comments referenced last month’s conflict, where Pakistani leaders, despite heavy damage to their own military installations, claimed victory over India’s Operation Sindoor.

Sharif’s nationalistic rhetoric came as he faced growing criticism for prioritising military spending over public welfare. Defence and debt continue to dominate Pakistan’s budget, leaving little fiscal room for development, education, or healthcare.

Defence analysts warn that the 20 per cent rise in military funding risks deepening Pakistan’s economic troubles, especially as debt servicing remains one of the largest drains on the national budget.

As Pakistan walks a tightrope between IMF conditions and domestic political pressures, ordinary citizens now face rising fuel prices, shrinking savings, taxed pensions, and costlier renewable energy. The government hopes these sacrifices will stabilise the economy. For many Pakistanis, however, it feels like another heavy burden in a long series of hardships.