Pakistan’s New Budget Offers Tax Breaks for Salaried Workers
In its 2025-26 federal budget, Pakistan has introduced significant tax relief for salaried individuals, aiming to alleviate inflationary pressures and foster economic stability. Here’s what salaried workers need to know:
Lower Taxes for Middle-Income Earners
- Individuals earning between PKR 600,000 and PKR 1.2 million annually will now pay only 1% tax, a substantial decrease from the previous 5%.
- Salaries from PKR 1.2 million to PKR 2.2 million will have their tax rate reduced to 11% from 15%.
- Those earning PKR 2.2 million to PKR 3.2 million see a minor relief, with the rate going down to 23% from the earlier 25%.
Relief for Higher-Income Groups
- Earners with an annual salary up to PKR 22 million will now pay a flat 11% tax, down from 15% previously.
- Those earning between PKR 22 million and PKR 32 million will pay 23% tax, reduced from 25%.
- For individuals earning more than PKR 32 million, the maximum tax rate remains at 35%, although an additional surcharge on income above PKR 10 million has been slightly reduced.
Government Perspective and Public Reaction
The government's aim is to improve the tax-to-GDP ratio, currently below 10%, aiming for 14%. However, despite this relief, the Salaried Class Alliance of Pakistan (SCAP) has expressed dissatisfaction, urging deeper reforms such as increasing the exemption threshold and broadening the tax net to include agriculture and retail sectors.
Impact Overview
| Annual Income | Previous Rate | New Rate | Relief Impact |
|---|---|---|---|
| PKR 0 to PKR 600,000 | 0% | 0% | No change |
| PKR 600,001 to PKR 1,200,000 | 5% | 1% | Significant cut |
| PKR 1.2 million to PKR 2.2 million | 15% | 11% | Moderate relief |
| PKR 2.2 million to PKR 3.2 million | 25% | 23% | Slight reduction |
| Above PKR 3.2 million | Up to 35% | Up to 35% | Minor surcharge cut |
The tax relief primarily benefits middle-income earners, especially those making between PKR 600,000 and PKR 1.2 million, offering substantial savings in tax payments.
Simplifying the Tax Structure
Finance Minister Muhammad Aurangzeb highlighted that these adjustments aim to balance rising inflation with increased disposable incomes. Critics, however, argue that critical demands remain unaddressed. The tax exemption threshold stays at PKR 600,000, despite calls from SCAP to raise it to PKR 1.2 million.
Final Thoughts
Overall, Pakistan’s 2025-26 budget takes positive steps to ease the burden on salaried taxpayers. However, as debate moves forward, attention will shift to whether broader tax reforms and a more inclusive approach will gain traction among lawmakers and the public.