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The federal cabinet has approved a new Rs1.8 billion special allowance for senior bureaucrats despite continuing austerity measures and limiting the salary increase for government employees to 7% in the 2026-27 federal budget. The decision was taken during the cabinet meeting that approved the federal budget in June. The new benefit is the second special allowance granted to top civil servants in the past four years. It comes at a time when the government is urging public institutions to reduce spending and maintain fiscal discipline. The newly approved incentive has been named the All Pakistan Services Provincial Governments’ Cadre Posts’ Parity Allowance. It will be effective from July 1, 2026. The approved allocation of Rs1.8 billion indicates that the allowance could be close to 100% of an officer’s basic salary, although the government has yet to announce the final rate and eligibility criteria. Officials have not publicly explained why the allowance was introduced or whether any formal study was conducted before approving it. Government departments also did not clarify the exact structure of the benefit. According to officials familiar with the matter, the allowance is intended to reduce differences in salaries and benefits between officers serving in the federal government and those working in provincial governments. Authorities believe many senior officers prefer provincial postings because they receive better financial incentives and additional privileges. The government also wants to encourage members of the Pakistan Administrative Service and the Police Service of Pakistan to continue serving in federal institutions by offering competitive compensation. However, the decision has drawn criticism from observers who argue that the move increases inequality within the public sector. While senior bureaucrats continue to receive additional financial benefits, the majority of government employees have received only a modest salary increase despite rising inflation and increasing living costs. Analysts believe the decision could encourage other civil service groups to demand similar allowances, putting additional pressure on the government’s finances and complicating future pay reforms. The cabinet also approved a major revision to the 150% executive allowance introduced in 2022. Instead of calculating the allowance on the 2017 basic pay scale, it will now be based on officers’ current basic salary as of June 30, 2026. This change will substantially increase payments for officers serving in grades 17 to 22 across key federal institutions. At the same meeting, the government extended austerity measures for another fiscal year. The restrictions include a ban on purchasing new vehicles and non-essential equipment, creating new posts, unnecessary foreign visits, and other non-priority expenditures. Government meetings and official events will continue to follow a simple catering policy.

ISLAMABAD: Pakistan’s Federal Board of Revenue (FBR) kicked off the new fiscal year on a positive note by surpassing its July tax collection target, although a shortfall in income tax receipts and the government’s decision to reject a key enforcement proposal highlighted the challenges that lie ahead. According to provisional figures, the FBR collected Rs810 billion in July, exceeding its monthly target by Rs30 billion. The collection also marked a 7% increase compared to Rs757 billion collected during the same month last year. The strong performance was largely driven by robust sales tax collections, which reached Rs358 billion, surpassing the target by Rs53 billion and recording an 18% year-on-year increase. A significant 78% of total sales tax, amounting to Rs275 billion, was collected at the import stage, where tax compliance is generally higher. However, income tax collection remained below expectations. The FBR collected more than Rs300 billion in income tax, falling Rs23 billion short of the target. Analysts attributed the shortfall to advance tax collections made in June to meet last fiscal year’s revised revenue goals, along with reduced withholding tax rates for salaried individuals and property transactions introduced in the latest federal budget. Meanwhile, customs duty collection stood at Rs105 billion, matching the target, while federal excise duty generated Rs48 billion, slightly exceeding expectations. The July performance marks the beginning of a crucial fiscal year in which the government has committed to collecting Rs15.263 trillion in taxes under an agreement with the International Monetary Fund (IMF). Meeting the annual target is considered essential for securing future IMF loan disbursements and creating fiscal space for development, defence and water resource projects. The FBR also reported encouraging progress in tax compliance, receiving around 227,000 income tax returns during July after updated tax return forms became available. Additionally, the authority issued Rs98 billion in tax refunds, approximately Rs13 billion more than in the same period last year. Despite the positive revenue performance, the federal cabinet declined an FBR proposal to activate restrictions on high-value purchases by individuals with insufficient declared assets. Had the proposal been approved, it would have limited the purchase of luxury vehicles, expensive properties, large stock investments and major cash withdrawals by non-compliant taxpayers. Economic observers say the government’s ability to sustain monthly revenue growth will be closely watched, as consistent tax collection remains critical to maintaining fiscal stability and meeting commitments under Pakistan’s economic reform programme.