Pakistan announces tax relief for salaried class in FY2025-26 budget
ISLAMABAD: Pakistan announced significant income tax relief for low- and middle-income earners on Tuesday as it presented its federal budget for the fiscal year 2025-26, aiming to ease the burden on salaried individuals amid high inflation and economic uncertainty.
Pakistan's tax-to-GDP ratio remains below 10%, among the lowest in the region. The government has pledged to raise this ratio to 14% through tax reforms, digital enforcement, and expanding the tax base.
Finance Minister Muhammad Aurangzeb, presenting his first full-year budget in the National Assembly, said the income tax rate for individuals earning between Rs600,000 and Rs1.2 million ($2,128–$4,255) annually would be cut from 5% to 1%.
'First of all, we are giving relief where it is needed the most,' Aurangzeb told parliament, adding that the measure was in line with Prime Minister Shehbaz Sharif's directive to support wage earners and retain talent in the country.
The government has also proposed reducing the tax on annual income up to Rs1.2 million from Rs30,000 to Rs6,000, lowering the tax rate from 15% to 11% for those earning up to Rs2.2 million ($7,800) and cutting the rate from 25% to 23% for income between Rs2.2 million and Rs3.2 million ($11,350).
For high-income earners making over Rs10 million ($35,460) annually, a 1% reduction in the additional surcharge has been recommended to help curb the ongoing brain drain, the minister said.
Aurangzeb described the changes as part of broader efforts to simplify the tax structure and 'strike a balance between inflationary pressures and take-home pay.'
The federal budget, with a total outlay of Rs17.57 trillion ($62 billion), comes as Pakistan seeks to stabilize its economy under a $7 billion International Monetary Fund (IMF) bailout program.
The budget also includes a 20% increase in defense spending, while total government expenditure is expected to be 7% lower year-on-year, reflecting fiscal consolidation goals tied to IMF negotiations.
The proposed budget will be debated in parliament before final approval.
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