ISLAMABAD – Sigh of relief for inflation weary salaried class as Pakistani government slashed income tax rate for individuals earning up to Rs12 lac annually to just 1percent, down from previous rate of 5percent.
Finance Minister Muhammad Aurangzeb made announcement during Senate session today as the move comes on the special directives of Prime Minister Shehbaz Sharif and is part of the broader fiscal reforms introduced in the Rs17.57 trillion federal budget for FY2025–26.
Income Tax Update
| Category | Figures |
| Income Tax Rate for Earners up to Rs1.2 Million | Cut from 5% to 1% |
| Initial Proposed Tax Rate for Rs600,000–Rs1.2 Million | 2.5% (later reduced to 1%) |
| Tax Rate for Earners up to Rs2.2 Million | Reduced from 15% to 11% |
| Tax Rate for Earners Rs2.2 Million – Rs3.2 Million | Reduced from 25% to 23% |
He admitted that salaried class faced burden while also paying record taxes, hoping this reduction will not only ease their financial stress but also help rebuild trust in the taxation system.
The proposed budget recommended reduction in tax rate for individuals earning between Rs600,000 and Rs1.2 million from 5% to 2.5%. However, following feedback and cabinet-level discussions, the rate was further slashed to a nominal 1%.
Other tax reliefs for the salaried class include a reduction in the income tax rate for annual earnings up to Rs2.2 million, from 15% to 11%. A cut in the tax rate for those earning between Rs2.2 million and Rs3.2 million, from 25% to 23%. A 1% surcharge relief for professionals earning over Rs1 million to help prevent brain drain.
Aurangzeb further emphasized that budget has been designed with welfare in mind, noting that federal expenditures have only risen by 1.9%, compared to previous years where growth reached as high as 12percent.
He also confirmed that the government revised its earlier proposal of an 18% sales tax on solar panels to 10%, in an effort to encourage renewable energy and protect local consumers. The minister warned importers and retailers against hoarding and price manipulation, promising strict action against profiteering in the solar sector.
Federal Board of Revenue (FBR) has been assigned tax collection target of Rs14,131 billion, an 18.7% increase over last year. Provincial shares from federal taxes will total Rs8,206 billion. Non-tax revenue is expected to generate Rs5,147 billion, bringing the federal government’s net income to Rs11,072 billion. Total federal expenditures are projected at Rs17,573 billion, with Rs8,207 billion earmarked for debt servicing.
