Islamabad, June 21, 2025: In a major relief for the inflation-stricken middle class, the Government of Pakistan has reduced the income tax rate for salaried individuals earning up to Rs1.2 million annually from 5% to just 1%.
The announcement was made by Finance Minister Muhammad Aurangzeb during a Senate session on Saturday. The move, part of the Rs17.57 trillion federal budget for FY2025–26, was introduced on the special directives of Prime Minister Shehbaz Sharif to provide targeted relief to the salaried segment of the population.
“This reduction is aimed at easing the financial burden on the salaried class, who have consistently borne the brunt of rising inflation while contributing a significant share to national tax revenues,” said Aurangzeb, expressing hope that the measure would also help restore public confidence in the country’s tax system.
Revised income tax rates for salaried individuals:
| Income Bracket | Previous Rate | Revised Rate |
| Up to Rs1.2 million | 5% | 1% |
| Rs600,000–Rs1.2 million (initial budget proposal) | 2.5% | 1% |
| Up to Rs2.2 million | 15% | 11% |
| Rs2.2 million–Rs3.2 million | 25% | 23% |
The finance minister clarified that the original proposal suggested a 2.5% tax rate for earnings between Rs600,000 and Rs1.2 million, but the rate was further reduced to 1% following cabinet discussions and public feedback.
Additional relief measures include a 1% surcharge cut for professionals earning over Rs1 million annually, a move aimed at retaining skilled professionals and addressing the country’s brain drain challenge.
Aurangzeb emphasized that this year’s budget was designed with a strong welfare component, noting that federal expenditure growth has been capped at just 1.9%—a significant drop from previous years when it rose as high as 12%.
In another significant revision, the government reduced the proposed 18% sales tax on solar panels to 10%, reinforcing its commitment to renewable energy and easing the cost burden on consumers. The finance minister also issued a stern warning to importers and retailers against hoarding and profiteering in the solar sector, pledging strict enforcement.
Budgetary highlights FY2025–26
- FBR Tax Collection Target: Rs14,131 billion (up 18.7% from last year)
- Provincial Share from Federal Taxes: Rs8,206 billion
- Non-Tax Revenue: Rs5,147 billion
- Net Federal Revenue: Rs11,072 billion
- Total Federal Expenditure: Rs17,573 billion
- Debt Servicing Allocation: Rs8,207 billion
The budget underscores a focus on equitable taxation, economic stabilization, and support for critical sectors like renewable energy while maintaining tight control over government spending.
