Finance Minister Muhammad Aurangzeb presented the budget for fiscal year 2025-26 on the floor of the National Assembly on Tuesday amid a routine protest by the opposition.

Pakistan’s budget for the upcoming year aims for GDP growth of 4.2 per cent and sets an ambitious tax collection target at Rs14,131 billion.

Relief for the salaried class

Most awaited among the rumoured announcements was some relief for the country’s much-burdened salaried class across all income slabs, according to the finance minister.

“This relief will not only simplify the tax structure but will also ensure a balance between inflation and take-home pay by reducing the tax burden on middle-income earners,” he said.

The minister also announced a 10pc increase in salaries to government employees from Grade-1 to Grade-22.

Proposed changes in income tax:

• People earning Rs600,000-Rs1.2 million: tax reduced from five per cent to 2.5pc
• People earning Rs1.2m to be charged Rs6,000 instead of Rs30,000
• People earning upto Rs2.2m: tax reduced to 11pc from 15pc
• People earning Rs2.2m-3.2m: tax reduced to 23pc from 25pc
• People earning above Rs10m: reduction of 1pc in 10pc surcharge applied to them

Aurangzeb said the salaried group’s relief was aimed at preventing brain drain from the country, stressing that the government was aware that the workforce was facing the highest taxes in the region and there was fear that the most talented individuals might emigrate.

“This move reflects the government’s commitment to make taxes fairer and reduce the burden on salaried individuals,” he said.

However, among the increases in income-related charges, the minister said there was a proposal to increase the tax on income from interest from 15pc to 20pc.

The minister said the government was introducing multiple measures to improve equality in the tax system and it was observed that the salaried and business classes paid heavy taxes, while people earning from non-traditional means relatively pay less taxes.

However, he said the above proposed tax increase would not apply to national savings schemes.

Change in pension structure:

Among the changes in the pension structure outlined by the finance minister are:

• 7pc increase in pension of retired government employees
• Duration of family pension limited to 10 years after spouse’s death
• Abolition of multiple pensions
• Choice of pension or salary in case of re-employment after retirement.
• 5pc tax on those under 70 earning over Rs10m through pension income (no tax on those earning low to medium pension income)

Property taxation changes

The finance minister also outlined various changes in taxes related to property and land since he said heavy taxes had a negative impact on the construction sector.

He said the following reductions in withholding tax on the purchase of property were proposed:

• 4pc to 2.5pc
• 3.5pc to 2pc
• 3pc to 1.5pc

Aurangzeb further said there was a proposal to abolish the federal excise duty of up to 7pc, which was imposed last year on the transfer of commercial properties, plots and houses, to reduce the burden on the construction sector.

A tax credit is also being introduced on houses up to 10 marlas and flats of 2,000 square feet to encourage mortgages for the provision of loans on low-cost housing.

There was also a proposal to reduce the stamp paper duty on the purchase of property in Islamabad from 4pc to 1pc.

Sales tax changes

The budget proposed several measures relating to sales tax changes affecting multiple items from solar panels to e-commerce:

• 18pc tax levy on imported solar panels
• Couriers and e-commerce logistic service providers to collect 18pc tax from e-commerce platforms
• General sales tax of 18pc on vehicles with a tax rate lower than 18pc
• Gradual sales tax on merged districts of Khyber Pakhtunkhwa and Balochistan from next fiscal year with 10pc
• Addition of following imported items in retail packing to Third Schedule of the Sales Tax Act, 1990: pet food, coffee, chocolates, cereal bars (sales tax to be collected based on retail price at applicable rates as embossed on the packaging)
• Withdrawal of reduced 10pc rate on local supply of vermicilli and sheer mal
• Withdrawal of reduced 12.5pc rate on locally manufactured or assembled cars up to 850cc
• Exemption of 10pc tax on local supply of buns and rusk

Rationalisation of mutual funds

Aurangzeb said there was a proposal to rationalise the tax rate on profits earned on mutual funds.

Tax rate on profit on debt has been proposed to be increased from 15pc to 20pc. The tax rate has been enhanced to 25pc & 15pc on dividend from mutual funds.

Notable measures

Some other major proposed measures in the minister’s budget speech are:

• Increase in advance tax rate from 0.6pc to 1pc on cash withdrawals by non-filers to discourage undocumented cash transactions, said Aurangzeb during his budget speech.
• Carbon levy at Rs2.5 per litre on furnace oil, high speed diesel and petrol — to be increased to Rs5/ltr in fiscal year 2026-27
• Rent from commercial properties to be recognised at standard 4pc rate of fair market value
• Restriction of major financial transactions — purchasing vehicles and immovable property, investing in securities and mutual funds, and opening certain bank accounts — to those who file returns and wealth statement
• 25pc rebate against tax payable by full-time teachers and researchers to be restored retrospectively