ISLAMABAD, May 11 — The federal government is weighing a strategic shift for the upcoming budget, considering a reduction in income tax rates for the salaried class instead of traditional increases in salaries and pensions. Finance Minister Muhammad Aurangzeb has signaled a desire to provide fiscal relief to both public and private sector employees by potentially raising the taxable income threshold. This approach aims to boost take-home pay without pushing government employees into higher tax brackets, which often offsets the benefits of nominal salary increases.
Quick Facts
- The government may freeze salaries and pensions to fund a significant reduction in personal income tax.
- Salaried individuals paid over Rs425 billion in taxes during the first three quarters of FY26.
- The tax contribution of the salaried class is more than double that of the real estate sector (Rs200 billion).
- Government salaries have risen by over 60% in four years, while private sector wages have largely stagnated.
- Pay hikes for PSDP-related project employees, recently notified at 20–35%, will remain protected.
- Budget consultations with the IMF mission are scheduled to begin on May 15.
Salaried Pakistanis could get income tax relief in Budget 2026-27, while salaries and pensions may stay unchanged this year. The idea is to improve take-home pay without pushing workers into higher tax slabs. 🧵 pic.twitter.com/Xc9YeC6aOb
— ProPakistani (@ProPakistaniPK) May 11, 2026
Officials argue that the salaried class has carried a disproportionate revenue burden compared to retailers, wholesalers, and the real estate sector. By lowering tax rates, the government intends to reward this segment’s high compliance while managing the fiscal deficit. Sources indicate that redirecting the Rs170 billion typically spent on annual pay raises toward tax relief could significantly lower the monthly financial pressure on households, which has been exacerbated by inflation linked to the ongoing Middle East crisis.
Final decisions on these proposals will depend on negotiations with the IMF, as the government also considers trimming the Public Sector Development Program (PSDP) to a skeleton allocation. While most government employees face a potential pay freeze, project-based staff will still receive their first pay revision in four years, effective July 1. This balanced fiscal strategy aims to ensure that no employee is “worse off” while the state attempts to stabilize the broader economy and meet international lender requirements.
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