ISLAMABAD:
In a much-needed relief for the tax-burdened and inflation-stricken government employees, the government jacked up their salaries by 10% along with a 4% cut in income tax rate across various slabs in the federal budget unveiled on Tuesday.
The government has taken a significant step to provide substantial relief to lower and middle-income sectors, proposing up to a four per cent reduction in income tax across various slabs. In addition, the government also proposed a 1% decrease in surcharge on earning of over Rs10 million per annum.
Presenting the federal budget for fiscal year 2025-26, Finance Minister Muhammad Aurangzeb stated that the prime minister had consistently endeavoured to lower taxes on salaried individuals.
“Keeping this objective in mind, we have proposed a decrease in income tax across all slabs,” he said.
“This measure will not only ease the existing tax structure but also strike a crucial balance between inflationary pressures and individuals’ take-home pay by alleviating the tax burden,” the minister announced, while delivering the budget speech in the National Assembly.
According to the budgetary proposal, individuals earning between Rs600,000 and Rs1.2 million per annum are set to receive significant tax relief, as the government lowers the tax rate from 5% to 1%.
For those earning up to Rs100,000 per month, the total tax amount comes down from Rs30,000 to Rs6,000.
Similarly, individuals in the next slab who earn up to Rs2.2 million per annum will see a 4% decline from 15 to 11% in income tax rate on their salaries. Individuals earning up to Rs3.2 million will benefit from a 2% cut — from 25 to 23% — in the next fiscal year.
Meanwhile, in a move to mitigate the brain drain phenomenon, which sees professional human resources facing the highest tax burden in the region, the government has proposed a 1% decrease in the surcharge applied to individuals earning more than Rs10 million per annum.
The salaried class paid a staggering Rs331 billion in income tax in the eight months of the current fiscalJulyFebruary periodwhich is 1,350% more than the taxes paid by retailers. The
amount was also Rs120 billion, or 56% higher than Rs211 billion collected during the same period of the last fiscal year.
Simultaneously, the finance minister also proposed a 10% increase in the salaries of the federal government employees and 7% enhancement in the pensions of retired federal employees.
However, he said that high-income pensioners would be brought under the tax net.
Finance Minister Aurangzeb said that despite the financial constraints, the government had decided to give a 10% increase in the salaries of government employees from Grade 1-22, with a view to increasing their purchase power.
Besides, special conveyance allowance for handicapped employees was being increased from Rs4,000 to Rs6,000. In order to reduce disparities among the employees of various departments, he announced the provision of 30% disparity reduction allowance for eligible employees.
This relief, the minister stated, would not only simplify the tax structure but also ensure a balance between inflation and take-home salary. “This move reflects the government’s commitment to making taxes fairer and reducing the burden on salaried individuals,” the finance minister said.
Similarly, the minister announced a 7% increase in the pensions of the retired employees.
He said a 5% tax had been proposed on the income of pensioners of up to 70 years, whose annual pension exceeded Rs10 million. He said that no tax would be imposed on the low and middle income pensioners.
He said that the pension scheme had been modified through executive orders in the past few decades, which burdened the national treasury. To rectify the situation, the government introduced reforms, such as discouraging early retirement and linking pension rise to the Consumer Price Index (CPI).
The finance minister also said that the family pension duration has been restricted to 10 years after the spouse’s death, and multiple pensions had been abolished.
Upon re-employment after retirement, an individual will have to choose between pension and salary.
