Massive Relief for Salaried Class: Pakistan Slashes Income Tax Rate to 1% for Annual Income Up to Rs1.2 Million
ISLAMABAD – In a major relief for the inflation-hit salaried segment, the Government of Pakistan has announced a sharp reduction in income tax for individuals earning up to Rs1.2 million annually — cutting the rate from 5% to just 1%.
The announcement was made by Finance Minister Muhammad Aurangzeb during the Senate session, following directives from Prime Minister Shehbaz Sharif. The move is part of the Rs17.57 trillion federal budget for FY2025–26 and aims to ease the financial burden on working professionals while increasing tax compliance and restoring public trust in the taxation system.
Income Tax Relief Breakdown
| Income Bracket (Annual) | Old Tax Rate | New Tax Rate |
|---|---|---|
| Rs600,000 – Rs1.2 million | 5% | 1% |
| Up to Rs2.2 million | 15% | 11% |
| Rs2.2 million – Rs3.2 million | 25% | 23% |
Initially, the government had proposed a reduced tax rate of 2.5% for individuals earning between Rs600,000 and Rs1.2 million. However, after extensive consultations and feedback from various stakeholders, the rate was further dropped to 1% — a historic low designed to offer meaningful relief to the middle-income group.
Aurangzeb acknowledged that the salaried class has been disproportionately affected by inflation and rising living costs. He emphasized that this tax cut is not just economic relief but a gesture to restore fairness in the system.
Additional Measures in the FY2025–26 Budget
Aside from relief for lower and middle-income earners, the budget also includes:
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A 1% reduction in surcharge for professionals earning above Rs1 million to prevent talent migration abroad.
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Revision of the solar panel sales tax from the previously proposed 18% down to 10%, aimed at promoting clean energy adoption.
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Federal expenditures kept at a modest 1.9% increase, reflecting fiscal discipline.
The Federal Board of Revenue (FBR) has been tasked with collecting Rs14,131 billion in taxes for the fiscal year — marking an 18.7% increase over last year. Of this, Rs8,206 billion will be distributed to the provinces under the NFC award.
Additionally, the government projects Rs5,147 billion in non-tax revenues, bringing the net income to Rs11,072 billion, while total expenditures are estimated at Rs17,573 billion. Debt servicing alone will consume Rs8,207 billion, underlining the need for prudent fiscal management and enhanced revenue streams.
