Aurangzeb pledges tax, energy and SOE reforms

Minister for Finance Muhammad Aurangzeb on Tuesday reaffirmed the government's resolve to implement structural reforms to achieve long-term economic growth and stability.

Speaking at the "National Workshop on Transitioning to Defined Contribution Pension Schemes", organised by the Securities and Exchange Commission of Pakistan, the minister said that the government was committed to reforming the areas of taxation, energy and state-owned enterprises (SOEs).

He emphasised that a major reform initiative introduced in the current year pertained to the tariff structure, aimed at transforming Pakistan into a more competitive economy. This includes gradually dismantling the wall of protection that has long hindered industrial growth.

The minister noted that such steps would help domestic industries advance and enable the export sector to become more robust and globally competitive. The government has also taken several measures to address public finance issues, particularly to reduce debt servicing costs, not just through the decline in policy rate, but also through broader fiscal measures.

Muhammad Aurangzeb underscored the importance of pension reform as a key component of the broader fiscal strategy and recalled that the government had taken a significant step in that direction last year.

"As of July 1, 2024, we announced that all new entrants to the federal government and civil service will move to a defined contribution scheme," he said, adding that it was a necessary move before even beginning to address the legacy issue of unfunded liabilities.

The minister stressed the need to stop fiscal bleeding as in this year's budget the pension bill alone crossed Rs1 trillion. He called pension reform not only a matter of fiscal responsibility but it was also essential to ensure long-term macroeconomic sustainability, predictability in government finances and to manage costs effectively.

He highlighted that the shift from defined benefit to a defined contribution pension model had significant implications at the individual level. "This transition isn't just a fiscal adjustment; it's about empowering employees to take ownership of their retirement savings."

The finance minister pointed out that the government in the FY26 budget proposed a 7% increase in pensions, which was aligned with prevailing inflation trends to protect their purchasing power. The government has also recommended a progressive taxation measure. "We have proposed a 5% tax on the annual pension income exceeding Rs10 million, which has been submitted to parliament for approval."

The minister said that those steps reflected a balanced approach, providing relief to pensioners while also ensuring that high-income recipients contribute fairly to national resources.