Pakistan budget 2026-27 cuts income taxes for salaried workers, businesses

Pakistan's government has proposed income tax cuts for salaried workers across four income brackets and the abolition of a surcharge on salaried individuals as part of its federal budget for fiscal year 2026-27.

The budget also includes a broad package of tax relief measures for businesses, exporters, retailers and the IT sector.

What are the income tax changes for salaried workers in Pakistan's budget 2026-27?

The budget reduces income tax rates across four salary brackets. Workers earning between PKR 2.2 million and PKR 3.2 million annually will see their rate fall from 23% to 20%.

The rate drops from 30% to 25% for the PKR 3.2 million to PKR 4.1 million bracket, from 35% to 29% for PKR 4.1 million to PKR 5.6 million, and from 35% to 32% for PKR 5.6 million to PKR 7 million. The surcharge on salaried individuals has also been abolished.

What relief does the budget offer businesses and corporations?

The budget revises the super tax regime for companies. Firms earning profits between PKR 150 million and PKR 500 million will have the super tax abolished entirely, while companies earning above PKR 500 million will see the rate reduced from 10% to 8%. The existing surcharge structure for banks, oil and gas exploration companies and fertilizer firms remains unchanged.

The construction sector receives targeted support. Sales tax on wholesale building materials will be cut from 2.5% to 1.25%, while retail-level taxation will fall from 5.5% to 2.75%.

How does the budget support Pakistan's IT sector?

The IT sector retains its concessional income tax rate of 0.25% on export earnings. The Final Tax Regime concession for the sector has been extended until June 30, 2029, and the Export Development Surcharge of 0.25% will be abolished.

The markup under the Export Facilitation Scheme will drop to 4.5%, and the refund period under the scheme will be extended from nine months to 18 months.

What changes does the budget propose for small retailers?

Small retailers with annual sales of PKR 1 billion or less will be brought under a new fixed tax regime through Section 99B. Eligible retailers will pay a flat 1% tax on annual sales and can adjust input withholding taxes. The point-of-sale system requirement will be replaced with a QR code-based verification mechanism.

The budget also proposes reducing withholding tax on international credit and debit card transactions from 5% to 0.5% per transaction. Capital gains tax and capital value tax on foreign-held assets will both be abolished.

What excise duty changes are included in the budget?

A federal excise duty of PKR 80 per unit will be imposed on white spirit, petroleum naphtha and mineral turpentine oil, which the government says are used in fuel adulteration. New duties will also apply to imported vehicles with engine capacities between 2,000cc and 3,000cc and imported electric vehicles valued above PKR 20 million. A separate duty of PKR 200 million will apply to luxury electric vehicles above 3,000cc.

Federal excise duty on business-class international travel for privileged categories will be abolished. Sales tax on sanitary pads and contraceptives will be fully removed.

What are Pakistan's fiscal targets for FY2026-27?

The Federal Board of Revenue has set a gross revenue target of PKR 15.264 trillion for FY2026-27, up 17.6% from the previous year. The government has also set a non-tax revenue target of PKR 5.336 trillion. Official projections put economic growth at 4%, average inflation at 8.2% and the fiscal deficit at 3.6% of GDP.

To strengthen tax administration, the FBR plans to establish a National Faceless Centre. Audits and assessments will be conducted through blind allocation systems and automated processes linked to a central data hub and the IRIS platform.

The budget allocates PKR 71 billion for the Prime Minister's Apna Ghar Housing Scheme, PKR 25.1 billion for public health, PKR 46 billion for higher education and PKR 26.3 billion for the education sector.