Salaried workers across Pakistan have something to cheer about in the federal budget for 2025-26, as the government introduces sweeping income tax cuts aimed at reducing financial pressure on middle- and high-income earners.
Unveiled by Finance Minister Muhammad Aurangzeb on Tuesday, the new budget puts the salaried class in Pakistan at the center of fiscal relief efforts. According to Aurangzeb, Prime Minister Shehbaz Sharif made it a clear priority to ease the tax burden on those who have long paid more than their fair share.
The most significant cut is for individuals earning up to Rs2.2 million annually. Their income tax rate will drop from 15% to just 11% — a 4% reduction that puts more money directly into their pockets. Similarly, people earning between Rs600,000 and Rs1.2 million annually will see their rate fall from 5% to 2.5%.
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“This is about fairness,” Aurangzeb said. “We’re aligning tax rates with inflation while creating a more balanced structure that supports the real contributors to our economy.”
Higher earners aren’t left out either. Taxpayers making between Rs2.2 million and Rs3.2 million will benefit from a rate reduction from 25% to 23%.
One of the issues in recent years has been the nation’s brain drain — the flight of professional talent because of economic pressures and heavy taxation. In response, the government has promised to reduce the surcharge on incomes over Rs1 million by 1%, with the hope of hanging on to the best talent.
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“We know Pakistan’s top talent faces some of the region’s highest taxes,” Aurangzeb noted. “This move is a signal — we want them to stay, not leave.”
Beyond relief for the salaried class in Pakistan, the budget outlines a strategic shift in national priorities. Overall spending is down 7%, now pegged at Rs17.57 trillion ($62 billion), but defence spending sees a sharp 20% jump following recent tensions with India. Defence allocation has risen to Rs2.55 trillion from Rs2.12 trillion last year.
The government projects 4.2% economic growth for FY26, a boost from this year’s likely 2.7%. Officials cite lower interest rates and improved debt management as reasons for optimism, although analysts caution that challenges remain due to fiscal constraints and IMF-backed reforms.
