The Federal Budget 2025-26 in Pakistan has introduced significant changes in the income tax structure for salaried individuals, aiming to provide relief to low and middle-income earners while maintaining a progressive tax system. Announced by Finance Minister Muhammad Aurangzeb on June 10, 2025, the revised tax slabs are focused on reducing the financial burden on the salaried class amid inflation and economic challenges. This blog explores the six proposed tax slabs for salaried workers, their implications, and how they affect different income groups.
Overview of the Budget 2025–26 Tax Reforms
Pakistan’s economy is going through a complex scenario due to inflation, rupee depreciation, and financial pressure from international obligations, such as the International Monetary Fund (IMF). The government has responded by restructuring income tax slabs to balance revenue generation with fiscal relief for salaried individuals. The revised slabs, which come into effect from July 1, 2025, reduce tax rates for the low and middle income brackets while leaving the higher slabs largely unchanged, except for a minor adjustment in the fixed tax amount.
The Six Proposed Tax Slabs for Salaried Workers
Below is a detailed breakdown of the six income tax slabs for salaried individuals for the fiscal year 2025–26, as outlined in the Finance Bill 2025:
Up to Rs. 600,000 Annually (Rs. 50,000/Month)
- Tax Rate: 0%
- Details: Individuals earning up to Rs. 600,000 per year are exempt from income tax. This limit, unchanged from previous years, ensures that low-income earners, such as those earning Rs. 50,000 or less per month, will not face any tax liability. This slab helps minimum wage workers and entry-level employees, protecting their disposable income.
Rs. 600,001 to Rs. 1,200,000 Annually (Rs. 50,001–Rs. 100,000/Month)
- Tax Rate: 1% on the amount exceeding Rs. 600,000
- Fixed Tax: None
- Details: In the 2024–25 budget, the tax rate for this income bracket has been significantly lowered from 5% to only 1%. For example, an individual earning Rs. 1,000,000 per annum will pay 1% on Rs. 400,000 (amounts above Rs. 600,000), resulting in a tax of Rs. 4,000. This represents an 80% reduction in tax liability compared to last year’s Rs. 20,000, offering significant relief to lower-middle-income earners.
Rs. 1,200,001 to Rs. 2,200,000 Annually (Rs. 100,001–Rs. 183,333/Month)
- Tax Rate: 11% on the amount exceeding Rs. 1,200,000 + Rs. 6,000 fixed tax
- Details: This slab has seen a reduction in tax rate from 15% to 11%, with the fixed tax portion reduced from Rs. 30,000 to Rs. 6,000 per annum. For an individual earning Rs. 1,500,000, the tax is calculated as Rs. 6,000 (fixed) + 11% of Rs. 300,000 (Rs. 33,000), totaling Rs. 39,000. This is a reduction of 48% compared to the previous year’s tax of Rs. 2000. 75,000, benefiting middle-income professionals like teachers and mid-level corporate employees.
Rs. 2,200,001 to Rs. 3,200,000 Annually (Rs. 183,334–Rs. 266,667/Month)
- Tax Rate: 23% on the amount exceeding Rs. 2,200,000 + Rs. 116,000 fixed tax
- Details: The tax rate for this bracket has been reduced from 25% to 23%, the fixed tax has been reduced from Rs. 180,000 to Rs. 116,000. For an annual income of Rs. 2,500,000, the tax is Rs. 116,000 + 23% of Rs. 300,000 (Rs. 69,000), total Rs. 185,000. This adjustment provides moderate relief, reducing the tax burden by about 16% for upper-middle income earners such as managers and small business owners.
Rs. 3,200,001 to Rs. 4,100,000 Annually (Rs. 266,668–Rs. 341,667/Month)
- Tax Rate: 30% on the amount exceeding Rs. 3,200,000 + Rs. 346,000 fixed tax
- Details: The tax rate remains at 30%, but the fixed tax portion has been reduced from Rs. 430,000 to Rs. 3,500,000 for income of Rs. 346,000; the tax is Rs. 346,000 + 30% of Rs. 300,000 (Rs. 90,000), totaling Rs. 436,000. This provides marginal relief primarily through a lower fixed tax for professionals like senior engineers or consultants.
Above Rs. 4,100,000 Annually (Above Rs. 341,667/Month)
- Tax Rate: 35% on the amount exceeding Rs. 4,100,000 + Rs. 616,000 fixed tax
- Details: The highest slab retains its 35% rate, with the fixed tax reduced from Rs. 700,000 to Rs. 616,000. For an income of Rs. 5,000,000, the tax is Rs. 616,000 + 35% of Rs. 900,000 (Rs. 315,000), totaling Rs. 931,000. Additionally, a 9% surcharge applies to incomes exceeding Rs. 10 million annually (down from 10%), affecting high earners like corporate executives. This slab sees minimal relief, with a focus on maintaining revenue from top earners.
Conclusion
The six proposed tax slabs for salaried workers in Pakistan’s Budget 2025-26 reflect a targeted effort to reduce the financial burden on low and middle-income earners while maintaining income for higher earners. With significant reductions in tax rates for incomes up to Rs. 3.2 million and minor adjustments for the slabs above, the government aims to balance equity and fiscal needs. While the reforms offer welcome relief, ongoing economic challenges and calls for broader tax reforms suggest that more comprehensive measures may be needed in the future.
Salaried individuals are encouraged to use tax calculators and consult professionals to improve their filings. As Pakistan moves towards its economic recovery, these changes mark a step towards helping the salaried class, although their long-term impact depends on effective implementation across all sectors and wider tax compliance.
