*Federal Budget FY26: Budget speech takeaways* *_These are initial impressions from the Budget and we will revert with our detailed thoughts after going through the Finance Bill and other relevant documents_* Federal Minister for Finance & Revenue - Muhammad Aurangzeb, unveiled the Federal Budget FY26 today; *Macro targets for FY26* • Tax target at Rs14.13trn • Non-Tax target at Rs5.15trn • Total outlay of Rs17.57trn • Defence expenditure at Rs2.55trn • Province transfer of Rs8.2trn • PSDP allocation at Rs1,000bn • BISP allocation at Rs716bn (21% YoY high) • Grants to be allocated at Rs1.9trn • Budget deficit of 3.9% of GDP • Primary surplus of 2.4% of GDP • GDP target 4.26% • Avg CPI expected at 7.5% *Energy Sector* • Imported Solar panels will attract 18% GST to promote local production of panels • GENCOs and DISCOS to be privatized • No losses by DISCOS in next 5 years • Improvement in Transmission and Distribution performance • Reconstitution of National Transmission and Dispatch Company (NTDC) • Supply of electricity to residential and commercial units in FATA/PATA to remain exempted until FY26 end • Induction of employees form the private sector in Board of Management of Public Sector power companies • Carbon levy Rs2.5/liter in FY26, Rs5/ltr in FY27 • Rs90.2bn allocated for the energy sector under development spending • Circular debt surcharge payment under NEPRA ACT at 10% *Pension liability* • Pension increments to be linked with CPI from now on • Family pension limited to 10 years after the death of the spouse • 10% increase in pensions for federal retired employees • Discouragement of early retirement • Individuals earning more than Rs1cr/annum will be charged 5% tax on the incremental *Salaried persons tax* • The fixed amount has been reduced across all slabs, with the tax rates for the first three slabs (up to Rs3.2mnannum) also being lowered. • Tax rates for the highest and second-highest slabs remain the same at 30% and 35%, respectively, but the fixed amount for these slabs has been reduced. • For high income salaried individuals, the incremental surcharge will be reduced from 10% to 9%, a decrease of 1%. *Taxes on Equities and other asset classes* • Interest income tax to be increased from 15% to 20%, not applicable on National Savings Scheme (NSS) • On equities, CGT remains at 15%, but income from loans will be taxed at 25% to encourage mutual funds to divert fund toward equities. • 7% excise duty on Commercial construction has been removed • It has been proposed to reduce Stamp duty from 4% to 1% for Federal (provinces to likely follow) *Construction* • Withholding Tax (WHT) to be reduced on property purchases from 4% to 2.5%, from 3.5% to 2%, and from 3% to 1.5%. • Tax credit for affordable housing • Sales tax exemption on FATA/PATA region to gradually be removed over the years with 10% for FY26 to 16% by FY29 • Policy to be drafted for mortgage financing *Autos* • ACD to be removed over the next 4 years and RD to be removed over the coming 5 years. • EV policy to be introduced to promote 2 and 3 wheelers to reduce carbon emissions • Vehicles that were previously subject to a lower than 18% GST will now be taxed at 18%. *Other measures* • Super tax to be reduced by 0.5% for income slabs between Rs200mn to Rs500mn against each slab respectively • WHT on bank transactions to be increased from 0.6% to 1% for non-filers • WHT on E-commerce transactions to be increased from 1% to 2% • Improve implementation of track and trace system to protect local formal tobacco industry • To facilitate privatization of PIA, it is proposed to grant exemption from payment of sales tax on import or lease of aircrafts • Allocation for infrastructure development from Reko Diq to Port Qasim *_We will soon release a detailed analysis on Federal Budget FY26._*