The Salaried Class Alliance Pakistan (SCAP) has welcomed the tax relief for individual wage earners announced through the budget presented for fiscal year 2026-27 on Friday, as Finance Minister Muhammad Aurangzeb said in his budget speech the government has decided to abolish 9% surcharge on salaried individuals and cut rate of income tax for employees earning over Rs2.2 million to Rs7 million a year.
The government has introduced two new slabs to reduce the rate of income tax on four upper income slabs through the budget for FY27.
The Alliance, however, expressed its disappointment over no announcement to increase tax-free annual income beyond Rs600,000/year. Earlier, it was proposed that the threshold of tax-exempted income would be increased to Rs1.2 million/year for the next fiscal year starting July 1, 2026, saying the threshold had been maintained at the current level for the past several years despite the inflation has hit hard over the years.
Presenting the budget in the National Assembly, Senator Aurangzeb said: “Prime Minister Shehbaz Sharif’s government is aware of the challenges faced by salaried employees in both the public and private sectors. On the instructions of the Prime Minister of Pakistan, I am pleased to announce today that our government has decided to provide tax relief to salaried individuals in four income slabs.”
In this regard, for salaried individuals earning between Rs2.2 million and Rs3.2 million annually, it is proposed to reduce the tax rate from 23% to 20%. For salaried individuals earning between Rs3.2 million and Rs4.1 million annually, it is proposed to reduce the tax rate from 30% to 25%. For individuals earning between Rs4.1 million and Rs. 5.6 million annually, it is proposed to reduce the income tax rate from 35% to 29%. Similarly, for salaried individuals earning between Rs5.6 million and Rs7.0 million annually, it is proposed to reduce the tax rate from 35% to 32%.
In addition to this, the government has decided to abolish the surcharge imposed on the salaried class. “We have proposed to eliminate the surcharge that we had reduced to 9% in FY26 from 10% earlier,” he said.
Reacting on the budget measures, SCAP member Komal Ali told Business Recorder that “apparently, the outlook is positive for the salaried class individuals after several years [of disappointment].”
The effective tax rate for individuals earning above Rs4.1 million a year in the outgoing year FY26 was significantly high considering they were paying income tax at 35% and a surcharge at 9%, she said.
In FY26, the highest upper slab was set at over Rs4.1 million. Now for FY27, the government has introduced a new slab for the income ranging between Rs4.1 million to Rs7.0 million a year to relief individual earners in the two upper brackets. “The income tax rate is locked at 35% for individuals earning above Rs7.0 million a year,” she said.
“The outlook has been painted positive after three years of hike in income tax rates and no relief. The announcement should be materialised through the final approval of the tax measures [Finance Bill 2026], as we have seen in one of the previous budgets that a positive announcement for salaried class people was not implemented as per the announcement,” she said.
“The government had room to increase the threshold for tax-free income, as they charge only 1% income tax on the salaries ranging above Rs600,000 a year to Rs1.2 million a year. If this had happened, it would have been a good budget,” Komal Ali said.
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