Pakistan Announces Major Tax Relief Measures in Federal Budget 2025-26

Strategic Insights -

The Pakistani government has announced significant tax relief measures for salaried individuals, the construction sector, and property buyers in the federal budget 2025-26. Finance Minister Muhammad Aurangzeb stated that Prime Minister Shehbaz Sharif's direction has led to a reduction in tax burden on the salaried class. The government aims to simplify the tax structure and balance inflation and take-home salaries.

Key Takeaways:

  • The tax rate for salaried individuals earning between Rs. 600,000 and Rs. 1.2 million has been reduced from 5% to 1%.
  • The tax amount for salaried individuals earning between Rs. 1.2 million and Rs. 2.2 million has been reduced from Rs. 30,000 to Rs. 6,000.
  • The minimum tax rate is proposed to be reduced to 11% from 15%.
  • A 0.5% reduction in the super tax rate on corporations earning annual income between Rs 200 million to 500 million.
  • Withholding Tax on property purchase reduced: 4% to 2.5%, 3.5% to 2%, and 3% to 1.5%.
  • Federal excise duty on transfer of commercial properties, plots, and houses eliminated.
  • Tax credit introduced for houses up to 10 marla and flats of up to 2000 sqft to provide loans for low-cost houses.
  • Stamp paper duty on property purchase in Islamabad reduced from 4% to 1%.
  • New tax introduced for e-commerce platforms, courier services, and digital services.
  • 5% tax on pensioners' income above Rs 10 million.
  • Advance tax rate on withdrawing cash for non-filers increased from 0.6% to 1%.
  • Rental income from commercial properties recognized at a standard rate of 4%.
  • 18% sales tax on solar panel imports to encourage local manufacturing.
  • Tax exemption removed for newly merged districts of KP and Balochistan over five years.
  • No further tax on fertilizers and pesticides.

Statistics:

  • 10% increase in pensions for federal government employees (BPS 1-22).
  • 7% increase in pensions for retired employees.
  • Special conveyance allowance for handicapped employees increased from Rs 4000 to Rs 6000.
  • 30% disparity reduction allowance proposed for eligible employees.
  • Special relief allowance proposed for officers/soldiers and JCOs of armed forces.
  • FBR's tax-to-GDP ratio increased from 8.8% to 10.3% in nine months.
  • Federal non-tax revenues increased to 1.2% of GDP compared to 0.8% last year.
  • Federal revenues at 11.6% of GDP, with a national tax-to-GDP ratio expected to reach 12.3% by the end of the fiscal year.

Sources:

  • Finance Minister Muhammad Aurangzeb's speech in the National Assembly (no specific date mentioned)
  • Pakistan's federal budget 2025-26 documents (no specific date mentioned)
  • Quotes from Finance Minister Muhammad Aurangzeb, Prime Minister Shehbaz Sharif (no specific date mentioned)