Pakistan Proposes Sweeping Income Tax Cuts in Budget 2025-26

Strategic Insights -

The Pakistan government has introduced significant income tax cuts in the Budget 2025-26, offering relief to middle-income salaried individuals. Starting July 2025, those earning Rs150,000 per month (Rs18 lac annually) will pay an income tax of Rs72,000, which breaks down to Rs6,000 per month. This updated structure offers substantial relief compared to previous years. The new tax slabs include 0% tax on the first Rs600,000, 1% on the next Rs600,000, and 11% on income between Rs1.2 million and Rs2.2 million. The changes aim to reduce the burden on middle-income individuals while ensuring a more progressive and simplified tax system.

Key Takeaways:

  • The new tax regime introduces 0% tax on the first Rs600,000, 1% on the next Rs600,000, and 11% on income between Rs1.2 million and Rs2.2 million.
  • Someone earning Rs150,000 monthly falls within the Rs1.2million-Rs2.2million bracket, paying a total of Rs72,000 annually.
  • The Prime Minister Shehbaz Sharif has given special instructions to reduce income tax rate for individuals earning up to Rs 1.2 million annually to just 1%, down from the previous 5%.
  • A 1pc surcharge relief has been announced for professionals earning over Rs 1 million annually to retain talent and counter the ongoing brain drain.
  • The new tax structure is expected to provide significant relief to middle-income salaried individuals, making it a more progressive and simplified tax system.

Statistics:

  • Income tax rate for individuals earning up to Rs 1.2 million annually reduced to 1% (down from 5%).
  • Profiles earning Rs150,000 monthly fall within the Rs1.2 million-Rs2.2 million bracket, paying a total of Rs72,000 annually.
  • Income tax payable for Rs150,000 monthly earners is Rs6,000 per month (Rs72,000 annually).
  • Total tax payable for Rs80,000 monthly earners is Rs3,600 per month (Rs43,200 annually), and for Rs100,000 monthly earners is Rs4,800 per month (Rs57,600 annually).
  • Total tax payable for Rs90,000 monthly earners is Rs4,800 per month (Rs57,600 annually), and for Rs100,000 monthly earners is Rs6,000 per month (Rs72,000 annually).

Sources:

  • "Pakistan Proposes Sweeping Income Tax Cuts in Budget 2025-26" (no specific date mentioned)
  • Tax Calculator 2025 (no specific date mentioned)
  • Pakistan Federal Budget 2025-26 (no specific date mentioned)
  • Prime Minister Shehbaz Sharif (no specific date mentioned)