Islamabad, April 16, 2025 – In a move aimed at providing much-needed relief to the salaried class, the federal government is reportedly considering increasing the salary tax exemption threshold from the current Rs600,000 to Rs800,000 in the upcoming 2025-26 budget.
As the budget announcement draws closer, sources within the Ministry of Finance have confirmed that the government is actively reviewing proposals to ease the tax burden on lower and middle income earners, particularly salaried individuals. This increase in tax-exempt salary income would allow workers earning up to Rs800,000 annually to retain more of their earnings, helping them cope with rising inflation and living costs.
Alongside this proposed revision, the government is expected to restructure existing salary income tax slabs. Officials from the Federal Board of Revenue (FBR) have indicated that the relief will primarily target lower salary brackets, with limited adjustments for higher income groups. The restructuring is part of a broader strategy to promote tax fairness and improve compliance.
The proposals are currently under scrutiny, particularly in light of ongoing discussions with the International Monetary Fund (IMF), which has a say in fiscal reforms tied to financial assistance programs. Any major changes to salary income taxation would need the IMF’s approval before implementation.
Three key proposals are on the table, including a plan to increase the starting point of the first taxable salary slab. This could benefit individuals earning slightly above Rs50,000 per month by reducing their tax liability. Additionally, the government is looking into simplifying the income tax filing process to make it more transparent and user-friendly, particularly for the salaried segment.
In parallel, tax reforms for pensioners are also under consideration. Proposed measures suggest a new taxation framework for higher income retirees, with tax rates ranging from 5 percent to 20 percent based on income brackets.
Officials emphasize that these ideas are still in the consultation phase and may be revised before the final budget presentation. The 2025-26 federal budget is expected later this year, with more clarity anticipated as stakeholder engagements progress.