Budget 2025-26: Pakistan govt offers tax relief to salaried class, but representatives unhappy

In a move to ease the tax burden on the working population, Finance Minister Muhammad Aurangzeb has announced cuts in income tax rates for low- to middle-income salaried individuals in the federal budget for 2025-26.

During the budget presentation in the National Assembly on Tuesday, Finance Minister Muhammad Aurangzeb highlighted the government’s efforts to alleviate the tax burden on salaried individuals.

“We have significantly reduced tax rates across all (six) income slabs for salaried people,” he stated. “This tax relief aims to benefit middle-income groups by striking a balance between inflation and take-home salaries, ultimately providing much-needed financial respite.”

However, representatives of the salaried class remain dissatisfied, citing minimal relief and continued neglect of broader tax reforms.

The budget maintains the income tax exemption threshold at Rs600,000 annually, rejecting the long-standing demand by the Salaried Class Alliance of Pakistan (SCAP) to increase it to Rs1.2 million. The government has instead focused on offering limited tax rate reductions for individuals earning between Rs600,001 and Rs3.2 million annually.

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According to the Finance Bill 2025, the tax rate for those earning Rs600,001 to Rs1.2 million has been slashed to 1% from 5%. Individuals earning between Rs1.2 million and Rs2.2 million will pay 11%, down from 15%, along with a drop in the fixed tax component from Rs30,000 to Rs6,000. For the Rs2.2 million to Rs3.2 million bracket, the rate has been reduced to 23% from 25%, and the fixed tax lowered from Rs180,000 to Rs116,000.

For those earning above Rs3.2 million annually, the rates remain unchanged. The 30% tax on incomes up to Rs4.1 million and 35% for those earning more continues. However, fixed taxes for the two slabs have been reduced to Rs346,000 and Rs616,000 from Rs430,000 and Rs700,000 respectively.

A slight relief has also been provided in the form of a 1 percentage point cut in the surcharge, down to 9% from 10% for individuals earning more than Rs10 million a year.

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While these measures appear to provide some reprieve for the salaried class, SCAP has called them insufficient. “The reduction in income tax rates for salaried individuals is insignificant,” said

Komal Ali, a member of SCAP. “Any relief is being negated by increased tax rates on investment avenues such as banking products and mutual funds, which many salaried individuals rely on.”

She also criticized the government for failing to widen the tax net. “The budget is silent on taxing millions of wealthy individuals who remain outside the tax system. The Finance Minister did not mention efforts to bring agriculture or the retail sector into the fold,” she added.

In FY25, salaried individuals contributed over Rs550 billion to the national exchequer, making them one of the most tax-compliant groups in Pakistan.