Finance Ministry Proposes Rs 921 Billion PSDP Cap for 2025-26

The Finance Ministry has proposed a Rs 921 billion ceiling for the Public Sector Development Programme (PSDP) in the 2025-26 budget, a steep cut from the Planning Ministry’s Rs 1.6 trillion demand, with profound tax implications for businesses as the budget nears June 2. Our tax law firm urges clients to prepare for Federal Board of Revenue (FBR) adjustments amid this development shortfall.

The Finance Ministry cites Rs 449 billion spent in the first ten months of the current Rs 1.1 trillion PSDP, a Rs 648 billion shortfall, using spending control to offset the FBR’s tax revenue gap, per The News. Planning Minister Ahsan Iqbal warns this Rs 179 billion reduction from Rs 1.1 trillion jeopardizes development needs, with foreign assistance of Rs 700 billion at risk and a tax-to-GDP ratio hike from 16% to 18% deemed essential. Web context highlights project delays like Bhasha and Dasu dams (cost overruns of Rs 480-1,700 billion), while posts on X reflect public frustration over cutbacks.

From a tax law perspective, reduced PSDP funding may slow infrastructure projects, impacting customs duties under Section 25 of the Customs Act for import-reliant firms, with input tax credits under Section 8B of the Sales Tax Act, 1990, at risk. FBR audits could target contractors’ deductions under Section 29 of the Income Tax Ordinance, as tax collection pressures rise with a 26% revenue surge and 33% remittance growth to $33 billion. Inflation drop to 2% and a current account surplus of $1.86 billion may ease tax burdens, but fiscal deficits at 2.2% signal compliance challenges.

Critically, the narrative of “economic progress” may mask resource constraints—web sources note provincial fiscal tensions under the 18th Amendment, and X sentiment questions PSDP cuts’ impact on investment, potentially triggering audit risks. Clients must stay proactive.

Our firm advises clients to review tax filings, ensure compliance, and prepare for FBR audits, navigating this constrained fiscal framework