Govt Cuts Tax for Salaried Class, Approves New Levy on High Pensions in Budget 2025–26
In a move aimed at easing the financial burden on low and middle-income earners, the federal government has revised the income tax structure for salaried individuals in the Budget 2025–26, slashing the tax rate from 2.5% to 1% for annual incomes between Rs600,000 and Rs1.2 million. The change, approved by the National Assembly Standing Committee on Finance, is part of a broader fiscal strategy supported by the International Monetary Fund (IMF).
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The revised slab, which was originally set at 2.5% in the new budget proposal and previously taxed at 5% during the outgoing fiscal year, is expected to offer relief to millions of salaried Pakistanis grappling with high inflation and rising living costs. According to officials, the measure was prompted by public concerns and political pressure, particularly amid ongoing negotiations with the IMF.
MNA Naveed Qamar, who chairs the finance committee, confirmed that the tax reduction was part of a broader consensus with the IMF. The committee also endorsed an increase in tax relief for government employees, raising it from 6% to 10%, further cushioning the impact of rising household expenses.
However, the budget also introduced a controversial provision: a 5% income tax on annual pensions exceeding Rs10 million. The Federal Board of Revenue (FBR), which proposed the measure, argued that high pension earners must contribute their fair share to the national treasury.
“Pensions are taxed in many countries, including India,” said FBR Chairman Rashid Mehmood Langrial. He clarified that pensions below the Rs10 million annual threshold will remain tax-exempt. Committee Chairman Naveed Qamar supported the measure, stating that monthly pensions exceeding Rs850,000 should not go untaxed.
The proposal drew criticism from some committee members. PTI’s Omar Ayub Khan challenged the logic, saying, “If you’re following international models for taxation, then the FBR should also be run according to global governance standards.” He questioned the fairness of targeting pensions without broader institutional reforms.
Committee member Muhammad Javed echoed similar concerns, warning of a slippery slope. “Today it’s Rs10 million, tomorrow you’ll be taxing Rs100,000 pensions. Most pensions don’t even come close to this threshold — except those of judges,” he added.
Despite the pushback, the pension tax provision was passed, marking a significant policy shift in how retirement incomes are treated. As the budget moves toward final approval, these changes signal the government’s attempt to balance fiscal responsibility with public relief, amid economic pressures and IMF oversight.
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