Pakistan likely to slash income tax rates for salaried class in 2025-26 budget

Pakistan is expected to grant significant tax relief to salaried individuals in the upcoming federal budget for the 2025-26 fiscal year, in an effort to counter rising inflation projected for the second half of the calendar year.

According to sources, Prime Minister Shahbaz Sharif has directed the Federal Board of Revenue to introduce tax breaks and incentives for salaried workers in the budget while compensating for revenue shortfalls through other measures.

The federal budget for 2025-26 is likely to be announced on June 2, 2025. Under a proposal currently under discussion, the government may raise the tax exemption limit from PKR 600,000 to PKR 1,000,000. If implemented, the tax-free monthly salary threshold would increase from presently PKR 50,000 to a little over PKR 83,000.

Additionally, proposals are expected to be introduced to reduce the 2.5% income tax rate across all existing slabs.

The government is considering a 2.5% reduction in the highest tax bracket, which currently stands at 35% for incomes exceeding PKR 333,000.

The 5% tax rate on monthly incomes of PKR 100,000, previously imposed, may also be adjusted downward.

Similarly, the 15% tax rate on monthly incomes of PKR 183,000 could be reduced to 12.5%.

For monthly incomes above PKR 267,000, the government currently charges a 25% tax, which could be lowered to 22.5%.

For monthly incomes up to PKR 333,000, the tax rate stands at 30%, with a possible reduction to 27.5%.

Salaried individuals contributed PKR 331 billion in income tax payments from July to February, marking a 56% increase of PKR 120 billion over the same period last year.

The government initially set a target of collecting an additional PKR 75 billion from salaried workers for the full fiscal year 2024-25. However, total collections have already exceeded PKR 120 billion, with four months remaining in the fiscal year.