The federal government has proposed a 7 percent increase in salaries of public sector employees and a 7 percent increase in pensions for retired government servants as part of the Budget 2026-27 presented in the National Assembly on Friday.
Presenting the federal budget, Finance Minister Muhammad Aurangzeb announced the proposed salary and pension increase, saying the government was mindful of the financial challenges faced by employees and pensioners amid rising living costs.
In addition to the pay and pension increase, the government has proposed a 10 percent increase in the minimum wage to provide relief to low-income workers across the country.
The budget also includes a package of income tax relief measures for salaried individuals through a restructuring of tax slabs and the abolition of the surcharge imposed on the salaried class.
According to the Finance Bill, income tax rates for salaried taxpayers have been reduced in several income brackets, while additional intermediate slabs have been introduced to lower the tax burden on middle- and upper-middle-income earners.
Under the proposed structure, salaried individuals earning between Rs2.2 million and Rs3.2 million annually will pay a fixed tax of Rs116,000 plus 20 percent of the amount exceeding Rs2.2 million.
For those earning between Rs3.2 million and Rs4.1 million a year, the proposed tax has been set at Rs316,000 plus 25 percent of the amount exceeding Rs3.2 million.
Salaried taxpayers with annual incomes between Rs4.1 million and Rs5.6 million will pay Rs541,000 plus 29 percent of the amount exceeding Rs4.1 million.
Meanwhile, individuals earning between Rs5.6 million and Rs7 million annually will be taxed at Rs976,000 plus 32 percent of the amount exceeding Rs5.6 million.
Government officials said the revised tax structure is aimed at providing relief to salaried taxpayers while maintaining revenue generation and improving tax compliance.
The salary increase, pension adjustment, minimum wage proposal and tax relief package are among the key measures announced in the federal budget and will become effective after approval of the Finance Bill by Parliament.