Big relief for salaried class as Income Tax slabs revised

One of the most striking features of the federal budget for FY2025–26 is the sweeping income tax relief extended to Pakistan’s salaried class—an often overlooked segment that has long borne the brunt of fiscal tightening.

While presenting the budget in Parliament, Finance Minister Muhammad Aurangzeb announced across-the-board cuts in income tax rates for salaried individuals, terming it a “priority directive” from Prime Minister Shehbaz Sharif. The move is designed to soften the blow of inflation and retain skilled professionals within the country.

The most substantial benefit is aimed at those earning between Rs600,000 and Rs1.2 million annually.

Their income tax rate has been slashed from 5% to just 1%, drastically reducing their tax burden. For instance, a salaried employee earning Rs1.2 million will now pay only Rs6,000 in annual income tax—down from Rs30,000.

Middle-income earners making up to Rs2.2 million a year will also feel relief, as their tax rate drops from 15% to 11%. For those in the Rs2.2 million to Rs3.2 million income bracket, the rate has been reduced from 25% to 23%.

Aurangzeb clarified that these cuts are part of a broader strategy to realign the tax regime with inflationary realities and to introduce simplicity and fairness into the tax system.

In a bid to tackle the brain drain crisis, the government has also proposed a 1% reduction in the super tax surcharge for individuals earning over Rs1 million.

“Pakistan’s top talent is taxed among the highest in the region. We want to give them a reason to stay and thrive here,” said the finance minister.

The tax relief comes alongside broader economic recalibrations, including a projected 4.2% GDP growth target for FY26 and an increase in defence spending by 20% to Rs2.55 trillion—reflecting recent regional tensions. Despite overall federal expenditure being trimmed by 7% to Rs17.57 trillion, the government remains optimistic that targeted fiscal measures and monetary easing will revive investor confidence and sustain economic momentum.