Karachi, June 11, 2025 – In a major fiscal shift aimed at adjusting the tax burden on salaried individuals, the Finance Bill 2025 has proposed new income tax rates for salary earners in Pakistan.
If approved by the National Assembly, these new rates will come into effect from July 1, 2025, replacing the current tax slabs defined under the Income Tax Ordinance, 2001.
The newly proposed salary tax rates reflect a restructured approach toward progressive taxation, slightly lowering the burden on lower-income segments while tweaking upper brackets to ensure greater contribution from high earners. This move is expected to impact millions of salaried individuals across the country, particularly those falling in the middle- and upper-income ranges.
Under the revised structure, salaried persons earning up to Rs. 600,000 annually will remain exempt from income tax, maintaining relief for low-income earners. However, individuals with a salary income between Rs. 600,000 and Rs. 1.2 million will now be taxed at a lower rate of 1% on the amount exceeding Rs. 600,000—down from the existing 5% in the previous framework.
For those with higher salary income, significant changes have been introduced across brackets. The income segment between Rs. 1.2 million and Rs. 2.2 million will now be taxed at 11% (previously 15%), reducing the financial pressure on moderate earners. Similarly, incomes above Rs. 2.2 million will now face an 23% tax on the incremental amount—slightly lower than the former 25% rate.
The highest tax rate, however, remains 35%, applicable on annual salary income exceeding Rs. 4.1 million. Yet the total fixed tax amount for this segment has been reduced compared to the previous slabs, offering some relief even to the top-tier taxpayers.
This realignment of rates is being seen as a balancing act by the government to ensure tax equity and encourage formal earnings disclosure, especially in the wake of a widening fiscal deficit. Economic analysts suggest the move will result in improved tax collection without disproportionately burdening the salaried class.
In line with global best practices, the FBR is expected to adjust payroll deduction systems and enhance compliance mechanisms to ensure effective implementation of the new salary tax rates. The government anticipates that these revised rates will also stimulate greater transparency and documentation within the economy.