ISLAMABAD/KARACHI – Pakistan’s tax policy framework will now be shaped directly by the Finance Division instead of the Federal Board of Revenue (FBR), Finance Minister Muhammad Aurangzeb announced on Monday.

Speaking at a conference on capital market development, Aurangzeb said the recently established Tax Policy Office (TPO) has been shifted to the Finance Division and will lead preparations for the 2026 federal budget. “The FBR will no longer deal with policy matters,” he clarified.

The TPO, created earlier this year, is tasked with designing tax reforms through data modelling, revenue forecasting, and economic analysis. The move is seen as part of a wider attempt to separate policy-making from revenue collection, a reform long recommended by economists.

Reform Agenda Expands Beyond Taxation

Aurangzeb highlighted that the government’s broader strategy is to foster a predictable economic environment. Over the past few months, new frameworks for tariffs, digitalisation, electric vehicles, and cashless transactions have been rolled out.

An industrial policy is also in the works, being spearheaded by Special Assistant to the PM Haroon Akhtar. According to Aurangzeb, the policy is central to shifting Pakistan from short-term stability to “sustainable growth.”

On tariffs, the minister underlined that reducing duties on imports—particularly for export-oriented industries—was a “home-grown agenda” and not dictated by the IMF.

Push for Capital Market Mobilisation

The finance minister proposed setting up a Capital Market Development Council to draw investment through local markets such as the Pakistan Stock Exchange (PSX). The council would bring together the Securities and Exchange Commission, State Bank, banks, insurers, and provincial governments.

His remarks came as the PSX crossed the 140,000-point mark for the first time, which he described as a sign of “strong market confidence.”

Economy Edging Toward Growth Phase

Aurangzeb also addressed Pakistan’s macroeconomic outlook, saying the country has entered a “growth phase” after two years of relative stability. The economy expanded by 2.7% in FY25, up from 2.5% the year before, with the government targeting 4.2% growth in FY26.

Credit rating agencies Fitch, S&P, and Moody’s have all upgraded Pakistan’s outlook in recent months. Aurangzeb called this alignment a “vote of confidence” in government policies, while cautioning against a return to Pakistan’s historic boom-and-bust cycles.

“The gold rush approach has hurt us in the past. We must pursue steady, inclusive growth,” he said.

Fitch Sees Improved Outlook but Warns of Risks

In a separate report, Fitch Ratings projected Pakistan’s GDP growth rising to 3.5% by 2027, backed by reforms, fiscal consolidation, and easing inflation. The agency upgraded Pakistan’s sovereign rating to B-/Stable earlier this year.

Inflation, which had peaked at 38% in mid-2023, has dropped to 4.1% by July 2025, allowing the central bank to cut its policy rate to 11%. This, Fitch said, should revive private sector credit demand and reduce banks’ reliance on government borrowing.

However, the agency warned that Pakistan’s banking sector remains vulnerable due to its heavy exposure to government debt.

Steps Toward a Cashless Economy

Alongside fiscal reforms, the government has accelerated its digital payments drive. From now on, all federal salaries, pensions, and vendor payments will be routed through bank transfers or Raast, the national instant payment system.

Utility bills will carry QR codes to enable electronic payments, while government entities—including CDA, NADRA, and Excise Departments—will integrate similar systems. Procurement will shift to digital invoicing and standardised payment workflows, with third-party validation planned for transparency.

In a related move, the government has waived Right of Way charges for telecom infrastructure projects, paving the way for nationwide fibre optic expansion. Officials say this will remove a major obstacle to reliable internet access.

Outlook

Pakistan’s economic indicators are showing signs of improvement: stabilised inflation, recovering growth, and rising investor confidence. Yet, challenges remain. Sustaining reforms, keeping fiscal discipline, and reducing reliance on external lenders will determine whether the current momentum translates into lasting progress.