Govt Slashes Income Tax for Salaried Class in Budget 2025-26

Finance Minister Muhammad Aurangzeb on Saturday announced major tax relief for Pakistan’s salaried class in the proposed budget for fiscal year 2025-26, with significant cuts in income tax rates across multiple salary brackets. Speaking during a Senate session, he revealed that individuals earning up to Rs1.2 million annually will now pay only 1% income tax, a sharp drop from the current 5%. This change follows Prime Minister Shehbaz Sharif’s directive to further reduce the initially proposed 2.5% tax rate for this income group.

Aurangzeb emphasized that the salaried class has long borne the brunt of inflation while paying their due taxes. He expressed hope that the reduction in tax would increase their disposable income and help rebuild trust in the taxation system. The government has introduced this tax relief as part of its Rs17.57 trillion budget for the fiscal year 2025-26, which seeks broad-based cuts for salaried individuals.

Additional tax relief measures include a reduction in the income tax rate from 15% to 11% for those earning up to Rs2.2 million annually, and a decrease from 25% to 23% for those earning between Rs2.2 million and Rs3.2 million. To curb brain drain, the government has also proposed a 1% reduction in surcharge for individuals earning over Rs1 million, aiming to retain highly skilled professionals.

Aurangzeb stated that the government is focused on welfare and fiscal discipline. He pointed out that federal expenditures have only increased by 1.9% compared to last year, a significant improvement from the previous 12% rise. Additionally, the earlier proposed 18% tax on solar panels has been reduced to 10% to encourage local industry, with a warning issued against hoarding and price manipulation of imported panels.

The Federal Board of Revenue has been given a tax collection target of Rs14,131 billion, reflecting an 18.7% increase from the previous fiscal year. Provinces will receive Rs8,206 billion as their share in federal taxes. With non-tax revenue expected to bring in Rs5,147 billion, the federal government’s net income is projected at Rs11,072 billion. Total federal expenditures are estimated at Rs17,573 billion, with Rs8,207 billion earmarked for markup payments.