Pakistan proposes further tax cut on certain salaried classes

Pakistan Finance Minister Senator Muhammad Aurangzeb said on Monday that the government has presented a balanced budget for the fiscal year 2025-26 (FY26), focusing on tax relief for the salaried class, support for industry and agriculture, and an expansion of social welfare programs.

While winding-up the budget 2025-26 discussion in the National Assembly, he said the government had initially proposed to reduce the tax rate on salaried income of up to PKR 3.2 million year. It had also proposed to reduce the tax rate on annual income of PKR 0.6 to PKR 1.2 million from 5% to 2.5%.

However, on the instructions of the prime minister, the government decided to further reduce the tax rate on this income — PKR 0.6 million to 1.2 million — to only 1%. This step will provide additional relief to the salaried class included in this category and will reduce their financial difficulties.

He also clarified that government will only tax those who receive pensions of more than PKR 10 million annually. Moreover, on the special instructions of the prime minister, pensioners above the age of seventy-five are exempted from any kind of tax.

Tax on solar equipment slashed

The finance minister informed that the government had initially proposed 18% sales tax on solar equipment, which has now been reduced to 10%. This tax will be applied to only 46% of imported components, which will increase the price of imported solar panels by only 4.6%.

In the past, people used to buy properties beyond their declared financial means. The proposed Finance Bill prohibits such people from engaging in huge economic activities under Section 114 of the Income Tax Ordinance, he added.

Aurangzeb said that under the new law, ineligible people (formerly known as non-filers) can purchase residential plots or houses worth up to PKR 500 million, commercial plots or properties worth up to PKR 10 million and vehicles worth up to PKR 0.7 million.

He also announced that government has decided to increase the tax rate on income derived from the debt portion of dividends issued by mutual funds to companies from 25% to 29%. It should be noted that the rate of 29% is already applicable on other sources of income of these companies.

In addition, government has also proposed to increase the tax rate to 20% on profits made by corporations and companies on investments in government securities.

The finance minister said that billions of rupees are being invested in the poultry industry and since the chick hatchery business is an important component of this industry, the government has decided that a federal excise duty of PKR 10 per chick be imposed on day-old chicks so that the share of this sector can also be included in the national income.

Review of FBR's powers

He also said the government has also carefully reviewed the existing powers of the tax collection body — the Federal Board of Revenue — regarding tax fraud. It has been decided that the FBR will not be able to make arrests without a court warrant in cases up to PKR 50 million.

In addition, FBR will also have to fulfil prior conditions for arrest. The approval of the arrest will be given by a high-level three-member committee of the FBR instead of a single officer and the arrested persons will have to be produced before a special judge within 24 hours.

The finance minister also said that the government has kept its expenditure under control.

He said that the most important proposal is tariff rationalization as he explained that by reducing import duties, the input cost of businesses will be reduced, which will increase exports. Moreover, these measures will lead to reduction in smuggling, increase government resources and growth in industries.

The industrial policy will be announced soon, while the consultation process on the EV policy has already begun, he shared.

He also said that government has also increased Benazir Income Support Program from PKR 592 billion to PKR 716 billion. This initiative will provide financial assistance to about 10 million families.

The government has launched a flagship program to provide cash-based loans to small farmers with land up to 12.5 acres. This loan will be used to pay for approved batches of seeds, fertilizers, pesticides and diesel, and the farmer will also be provided with crop and life insurance.

The government is going to promote affordable housing finance and introduce a 20-year loan scheme for low-income people who want to buy or build a home, he added.