ISLAMABAD – In a landmark fiscal development, lawmakers have officially approved a new income tax structure specifically targeting salaried persons, aimed at creating a more progressive and equitable taxation framework.
The revised structure was passed on Thursday following the presentation of the amended Finance Bill, 2025 by Finance Minister Muhammad Aurangzeb in the National Assembly (NA).
The updated income tax regime introduces a carefully tiered structure for salaried persons, ensuring those with lower incomes remain protected while higher earners contribute proportionally more. As per the new law, individuals with annual earnings of up to Rs600,000 will remain completely exempt from tax. This move aims to provide relief to low-income persons, especially amid rising inflation and cost-of-living concerns.
For salaried persons earning between Rs600,001 and Rs1.2 million per annum, the government has introduced a nominal tax rate of 1 per cent. Those whose incomes fall between Rs1.2 million and Rs2.2 million will now pay a fixed tax of Rs6,000, plus 11 per cent on the amount exceeding Rs1.2 million.
Incomes ranging between Rs2.2 million and Rs3.2 million will attract a fixed tax of Rs116,000, along with 23 per cent on the income exceeding Rs2.2 million. Meanwhile, salaried persons earning between Rs3.2 million and Rs4.1 million will pay a base amount of Rs346,000 and 30 per cent on the additional amount over Rs3.2 million. For high-income persons earning above Rs4.1 million, a fixed tax of Rs616,000 plus 35 per cent on the surplus income will be applicable.
In a new measure affecting retired persons, the government has imposed a 5 per cent income tax on annual pension earnings that exceed Rs10 million, reflecting a broader intent to widen the tax net while maintaining fairness.
Additional measures in the Finance Bill, 2025 include setting a 10 per cent sales tax on solar panels—sparking some debate—and a mandate for the electronic monitoring of import, transit, and delivery of goods. The comprehensive changes reflect the government’s effort to modernize tax collection while providing some relief to middle-income salaried persons.