Pakistani Govt plans major income Tax relief for salaried workers, ongoing consultations with IMF

The federal government is working on a much-needed tax relief plan for the salaried workers in the upcoming 2025-26 budget, aiming to ease the burden on middle-income earners. Insiders reveal that the proposal includes reducing income tax rates across all brackets and significantly raising the tax exemption threshold.

Currently, individuals earning up to Rs. 600,000 annually pay no income tax. The government is now looking to raise that exemption limit to Rs. 1 million per year, meaning anyone earning up to Rs. 83,000 a month would be completely tax-free.

In addition, the details of the possible reduction in income tax rates for different income slabs are as follows:

• Income tax on a monthly income of Rs. 1 lakh could be reduced from 5% to 2.5%.
• It is proposed to reduce the rate from 15% to 12.5% ​​for income of Rs. 183,000 per month.
• The rate for income of Rs. 267,000 per month may be reduced from 25% to 22.5%.
• The tax rate on income up to Rs. 333,000 per month is likely to be reduced from 30% to 27.5%.
• The current income tax rate on income exceeding Rs. 333,000 per month could be reduced from 37.5 percent to 35 percent.

The government is also planning to cut taxes for the corporate sector and reduce the super tax slightly to support businesses.

However, all these measures required the approval from the International Monet Fund (IMF), as Pakistan continues to stay within the limits of its loan program. The government hopes to strike a balance, providing relief to the public while maintaining fiscal discipline.