Govt considering tax relief in Budget 2025-26

As Pakistan prepares to unveil its federal budget for the 2025-26 fiscal year, early details suggest the government is considering tax relief measures aimed at easing the burden on the salaried class.

The government is likely to increase the annual tax-free income limit from the current Rs600000 to Rs800000, sources revealed. This proposal is part of upcoming budget reforms aimed at giving relief to salaried individuals facing rising inflation.

Along with the increase in the taxable income threshold, changes in the existing income tax slabs are also being considered. However, these plans are subject to approval by the International Monetary Fund (IMF), as negotiations are ongoing with the global lender.

According to the Federal Board of Revenue (FBR), only the lower income tax slabs are expected to be revised. No major relief is planned for higher-income earners at this stage. One proposal includes revising the first slab that applies to those earning more than Rs50,000 per month.

Officials say that taxpayers earning between Rs600,000 and Rs1.2 million per year may get some relief under the new policy. The government also plans to make the income tax return filing process easier and more transparent for citizens.

In a separate move, the government is reviewing tax options for pensioners receiving higher incomes.

Under the proposed system, pension income up to Rs800000 may be taxed at 5 percent. Those earning between Rs800001 and Rs1.5 million could face a 10 percent tax, while income between Rs1.5 million and Rs2 million may attract 12.5 percent tax.

Pensioners earning up to Rs3 million might be taxed at 15 percent, and those with over Rs3 million income could see a 20 percent tax. These proposals are still being reviewed and will be finalized after stakeholder consultations. The federal budget 2025-26 is expected to be announced later this year.