Government Reduces Tax Rates to Ease Burden on the Salaried Class, Aims to Rebuild Trust in the Taxation System
By Business Desk | June 21, 2025
Islamabad — In a significant move aimed at providing relief to the salaried class and restoring their trust in the country’s tax system, the federal government announced a notable reduction in income tax rates for individuals earning up to Rs1.2 million per year. This announcement was made by Finance Minister Muhammad Aurangzeb during a recent Senate session, marking one of the key highlights of the FY2026 federal budget.
In a well-received speech delivered to the Upper House of the parliament, Aurangzeb emphasized that the reduction in income tax rates was aimed primarily at alleviating the financial burdens felt by the salaried segment of society. The announcement came as a beacon of relief for many working-class families grappling with rising living costs due to inflation and other economic pressures.
Reducing the Tax Burden for the Salaried Class
The federal government announced its decision to reduce the income tax rate for people making between Rs600,000 and Rs1.2 million per year from the proposed rate of 2.5% down to a mere 1%. This reduction is a significant relief measure for salaried individuals.
Previously, these taxpayers were required to pay 5% income tax. In its proposed budget for FY2026, the government had announced a reduced rate of 2.5%. However, upon the special directive of Prime Minister Shehbaz Sharif, the rate has now been brought down even further — down to 1%.
“The salaried class bears the brunt of rising inflation and has been faithful in paying taxes over the years,” stated Finance Minister Aurangzeb while addressing the Senate. “Through this measure, we hope to provide much-needed relief and ensure that these hardworking people have more disposable income available to them every month. More importantly, this will also help restore their trust in the tax system,” he added.
Changes for Other Salary Brackets
The relief measures announced for low- and middle-income earners are complemented by changes across other income brackets as well. Individuals earning between Rs1.2 million and Rs2.2 million per year will now be taxed at a rate of 11%, down from the existing rate of 15%. This marks a significant 4% drop for a critical segment of the workforce that forms the backbone of the country’s economic productivity.
Similarly, the tax rate for those making between Rs2.2 million and Rs3.2 million per year has been reduced from 25% to 23%. This slight decrease aims to cushion the middle and upper-middle class from the growing economic pressures and incentivize more diligent tax payments.
Moreover, a special provision has been announced for highly skilled professionals. The government has proposed a 1% reduction in the surcharge applicable to those earning over Rs1 million per year. This measure aims to counteract brain drain — a long-standing concern for the nation — and to retain talent within the country.
Measures Against Brain Drain
The issue of brain drain has long posed a serious challenge for Pakistan, prompting countless highly skilled professionals to seek better opportunities abroad. The federal government has acknowledged this reality and, in its proposed FY2026 budget, announced targeted measures to counteract the trend.
“As we have seen in recent years, many highly skilled professionals, especially in the fields of technology, medicine, engineering, and finance, have opted to move abroad due to the growing cost of living and relatively high tax burdens,” said Finance Minister Aurangzeb. “Through targeted policies such as the surcharge reduction for higher income brackets, we want to send a strong message to our talented workforce that their future is valued and secure within Pakistan.”
Commitment to Sustainable Fiscal Policy
While offering tax relief, the government has also emphasized its commitment to maintaining fiscal discipline. Aurangzeb announced that the federal expenditure in the proposed FY2026 budget has been increased by only 1.9%. In comparison, the annual federal expenditure had surged by roughly 12% in preceding years.
“This approach reflects a shift towards a more sustainable fiscal policy, wherein we balance necessary spending with responsible resource generation,” stated the finance minister. “The proposed budget aims to support the people while ensuring that the federal government operates within its means.”
Reduction in Tax Rates for Solar Panels and Measures Against Hoarding
In line with its commitment to promoting a green and sustainable future, the federal government announced a significant reduction in the proposed tax rate for solar panel imports. The initial proposal called for an 18% tax on solar panels, but this has been reduced to just 10%.
“The reduction in tax for solar panels is a strong statement about the government’s priorities,” Aurangzeb said. “We recognize the role of renewable energy in addressing the energy crisis and making Pakistan more resilient. Reducing the tax rate will enable more people to adopt solar energy solutions, ultimately benefiting both the environment and the economy.”
The finance minister also issued a stern warning to those engaged in hoarding and artificially inflating the price of imported solar equipment. The government, he announced, would take strict action against such practices. earning up
Fiscal Targets and Expectations
The FY2026 budget aims for a total tax collection target of Rs14,131 billion, representing an 18.7% increase compared to the preceding fiscal year. This ambitious target reflects the government’s commitment to expanding its tax base and increasing revenues while offering targeted relief to taxpayers. earning up
Out of the total tax revenue, Rs8,206 billion will be shared with the provinces, highlighting the federal government’s commitment to supporting provincial autonomy and ensuring equitable distribution of resources. Meanwhile, the target for non-tax revenue has been set at Rs5,147 billion. earning up
With these measures, the federal government aims for a net income of Rs11,072 billion in FY2026, while total federal expenditures are estimated to be Rs17,573 billion. Of this, Rs8,207 billion has been allocated for mark-up payments — underscoring the pressing challenge posed by growing interest obligations.
FBR Targets and Challenges
The Federal Board of Revenue (FBR) has been set a target of Rs14,131 billion for FY2026, an increase of roughly 18.7% from the prior year. Achieving this target will be critical for the government’s ability to finance vital social and economic development projects. earning up
“Achieving this target is ambitious but necessary,” stated Aurangzeb. “Through expanding the tax base, increasing compliance, and leveraging digital technologies, we are confident that FBR will be able to rise to the challenge and contribute to the overall economic well-being of the country.” earning up
The Importance of Trust in the Taxation System
Trust in the taxation system is a vital component for ensuring compliance and long-term economic stability. The finance minister emphasized that the government’s decision to reduce the tax ra te for low- and middle-income earners was rooted in a desire to foster trust and create a more equitable system for all. earning up
“As a nation, we must recognize that paying taxes is not merely an obligation — it is a contribution to the collective well-being and prosperity of the country. The changes announced today send a strong message that this government is committed to fairness and inclusivity. We recognize the struggles of the common man and stand with them,” Aurangzeb stated. earning up
An Investment in the Middle Class
Through these new measures, the government aims to alleviate the financial burdens of the salaried class, which comprises a significant portion of the middle class — the engine of economic growth and social stability in any country.
With rising prices of basic commodities and utilities, making ends meet has become increasingly challenging for many Pakistani families. The reduction in income tax for low- and middle-income earners is not just a fiscal measure, but an investment in the middle class — a segment vital to sustaining the national economy. earning up
The Road Ahead
While the announced tax relief measures have been met with a largely positive response, the government faces a challenging road ahead. The ambitious revenue targets, rising federal expenditures, and the pressure of international loan obligations mean that meticulous planning and diligent execution are required to ensure economic stability. earning up
The FY2026 budget aims to balance fiscal discipline with measures that foster economic growth and equity. The proposed tax relief for the salaried class and highly skilled professionals, combined with incentives for solar energy adoption, mark an important shift towards inclusive economic policymaking. earning up
Final Thoughts
The federal government’s decision to reduce income tax rates for the salaried class and other taxpayers is a bold and significant move. At its core, this measure aims to rebuild trust in the taxation system, providing relief to hardworking Pakistani citizens and allowing them to retain more of their income. earning up
By addressing long-standing grievances of the salaried class, introducing incentives for highly skilled professionals, and focusing on sustainable energy policies, the government is making a concerted effort to foster long-term economic resilience. earning up
Through these measures, it aims to create an environment where citizens feel valued, trusted, and hopeful for the future. The fiscal policies announced in the FY2026 budget reflect a shift towards equity, responsibility, and sustainability — a shift that is vital for the economic prosperity of the nation and the well-being of its people. earning up
Islamabad — In a significant move aimed at providing relief to the salaried class and restoring their trust in the country’s tax system, the federal government announced a notable reduction in income tax rates for individuals earning up to Rs1.2 million per year. This announcement was made by Finance Minister Muham mad Aurangzeb during a recent Senate session, marking one of the key highlights of the FY2026 federal budget. earning up
In a well-received speech delivered to the Upper House of the parliament, Aurangzeb emphasized that the reduction in income tax rates was aimed primarily at alleviating the financial burdens felt by the salaried segment of society. The announcement came as a beacon of relief for many working-class families grappling with rising living costs due to inflation and other economic pressures. earning up
Reducing the Tax Burden for the Salaried Class
The federal government announced its decision to reduce the income tax rate for people making between Rs600,000 and Rs1.2 million per year from the proposed rate of 2.5% down to a mere 1%. This reduction is a significant relief measure for salaried individuals. earning up
Previously, these taxpayers were required to pay 5% income tax. In its proposed budget for FY2026, the government had announced a reduced rate of 2.5%. However, upon the special directive of Prime Minister Shehbaz Sharif, the rate has now been brought down even further — down to 1%.
“The salaried class bears the brunt of rising inflation and has been faithful in paying taxes over the years,” stated Finance Minister Aurangzeb while addressing the Senate. “Through this measure, we hope to provide much-needed relief and ensure that these hardworking people have more disposable income available to them every month. More importantly, this will also help restore their trust in the tax system,” he added. earning up
Changes for Other Salary Brackets
The relief measures announced for low- and middle-income earners are complemented by changes across other income brackets as well. Individuals earning between Rs1.2 million and Rs2.2 million per year will now be taxed at a rate of 11%, down from the existing rate of 15%. This marks a significant 4% drop for a critical segment of the workforce that forms the backbone of the country’s economic productivity.
Similarly, the tax rate for those making between Rs2.2 million and Rs3.2 million per year has been reduced from 25% to 23%. This slight decrease aims to cushion the middle and upper-middle class from the growing economic pressures and incentivize more diligent tax payments. earning up
Moreover, a special provision has been announced for highly skilled professionals. The government has proposed a 1% reduction in the surcharge applicable to those earning over Rs1 million per year. This measure aims to counteract brain drain — a long-standing concern for the nation — and to retain talent within the country. earning up
Measures Against Brain Drain
The issue of brain drain has long posed a serious challenge for Pakistan, prompting countless highly skilled professionals to seek better opportunities abroad. The federal government has acknowledged this reality and, in its proposed FY2026 budget, announced targeted measures to counteract the trend. earning up
“As we have seen in recent years, many highly skilled professionals, especially in the fields of technology, medicine, engineering, and finance, have opted to move abroad due to the growing cost of living and relatively high tax burdens,” said Finance Minister Aurangzeb. “Through targeted policies such as the surcharge reduction for higher income brackets, we want to send a strong message to our talented workforce that their future is valued and secure within Pakistan.”
Commitment to Sustainable Fiscal Policy
While offering tax relief, the government has also emphasized its commitment to maintaining fiscal discipline. Aurangzeb announced that the federal expenditure in the proposed FY2026 budget has been increased by only 1.9%. In comparison, the annual federal expenditure had surged by roughly 12% in preceding years. earning up
“This approach reflects a shift towards a more sustainable fiscal policy, wherein we balance necessary spending with responsible resource generation,” stated the finance minister. “The prop osed budget aims to support the people while ensuring that the federal government operates within its means. ”earning up
Reduction in Tax Rates for Solar Panels and Measures Against Hoarding
In line with its commitment to promoting a green and sustainable future, the federal government announced a significant reduction in the proposed tax rate for solar panel imports. The initial proposal called for an 18% tax on solar panels, but this has been reduced to just 10%. earning up
“The reduction in tax for solar panels is a strong statement about the government’s priorities,” Aurangzeb said. “We recognize the role of renewable energy in addressing the energy crisis and making Pakistan more resilient. Reducing the tax rate will enable more people to adopt solar energy solutions, ultimately benefiting both the environment and the economy.” earning up
The finance minister also issued a stern warning to those engaged in hoarding and artificially inflating the price of imported solar equipment. The government, he announced, would take strict action against such practices. v
___________________________________________________________________________________
Poliovirus found in sewage samples across seven districts Courageous 7
Read This Articals
___________________________________________________________________________________
Fiscal Targets and Expectations
The FY2026 budget aims for a total tax collection target of Rs14,131 billion, representing an 18.7% increase compared to the preceding fiscal year. This ambitious target reflects the government’s commitment to expanding its tax base and increasing revenues while offering targeted relief to taxpayers. earning up
Out of the total tax revenue, Rs8,206 billion will be shared with the provinces, highlighting the federal government’s commitment to supporting provincial autonomy and ensuring equitable distribution of resources. Meanwhile, the target for non-tax revenue has been set at Rs5,147 billion. earning up
With these measures, the federal government aims for a net income of Rs11,072 billion in FY2026, while total federal expenditures are estimated to be Rs17,573 billion. Of this, Rs8,207 billion has been allocated for mark-up payments — underscoring the pressing challenge posed by growing interest obligations. earning up
FBR Targets and Challenges
The Federal Board of Revenue (FBR) has been set a target of Rs14,131 billion for FY2026, an increase of roughly 18.7% from the prior year. Achieving this target will be critical for the government’s ability to finance vital social and economic development projects .earning up
“Achieving this target is ambitious but necessary,” stated Aurangzeb. “Through expanding the tax base, increasing compliance, and leveraging digital technologies, we are confident that FBR will be able to rise to the challenge and contribute to the overall economic well-being of the country.” earning up
The Importance of Trust in the Taxation System
Trust in the taxation system is a vital component for ensuring compliance and long-term economic stability. The finance minister emphasized that the government’s decision to reduce the tax rate for low- and middle-income earners was rooted in a desire to foster trust and create a more equitable system for all. earning up
“As a nation, we must recognize that paying taxes is not merely an obligation — it is a contribution to the collective well-being and prosperity of the country. The changes announced today send a strong message that this government is committed to fairness and inclusivity. We recognize the struggles of the common man and stand with them,” Aurangzeb stated reduced . earning up
An Investment in the Middle Class
Through these new measures, the government aims to alleviate the financial burdens of the salaried class, which comprises a significant portion of the middle class — the engine of economic growth and social stability in any country.
With rising prices of basic commodities and utilities, making ends meet has become increasingly challenging for many Pakistani families. The reduction in income tax for low- and middle-income earners is not just a fiscal measure, but an investment in the middle class — a segment vital to sustaining the national economy reduced . earning up
The Road Ahead
While the announced tax relief measures have been met with a largely positive response, the government faces a challenging road ahead. The ambitious revenue targets, rising federal expenditures, and the pressure of international loan obligations mean that meticulous planning and diligent execution are required to ensure economic stability reduced .
The FY2026 budget aims to balance fiscal discipline with measures that foster economic growth and equity. The proposed tax relief for the salaried class and highly skilled professionals, combine d with incentives for solar energy adoption, mark an important shift towards inclusive economic policymaking . earning up
Final Thoughts
The federal government’s decision to reduce income tax rates for the salaried class and other taxpayers is a bold and significant move. At its core, this measure aims to rebuild trust in the taxation system, providing relief to hardworking Pakistani citizens and allowing them to retain more of their income. c
By addressing long-standing grievances of the salaried class, introducing incentives for highly skilled professionals, and focusing on sustainable energy policies, the government is making a concerted effort to foster long-term economic resilience. earning up
Through these measures, it aims to create an environment where citizens feel valued, trusted, and hopeful for the future. The fiscal policies announced in the FY2026 budget reflect a shift towards equity, responsibility, and sustainability — a shift that is vital for the economic prosperity of the nation and the well-being of its people.
