Federal govt proposes 7% pay and pension increase, 10% minimum wage hike

The federal government has proposed a 7% increase in the salaries of public-sector employees and pensions of retired government workers in the budget for fiscal year 2026-27.

The budget also proposes a 10% increase in the minimum wage.

The Finance Bill proposes income tax relief for salaried individuals by restructuring four income slabs, reducing applicable rates, and introducing additional intermediate brackets.

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For salaried taxpayers earning between Rs2.2 million and Rs3.2 million annually, the tax rate has been reduced from 23% to 20%. They would pay a fixed tax of Rs116,000 plus 20% of the amount exceeding Rs2.2 million.

Those earning between Rs3.2 million and Rs4.1 million a year would pay Rs316,000 plus 25% of the amount exceeding Rs3.2 million. The applicable rate for this bracket has been lowered from 30% to 25%.

For annual salaries between Rs4.1 million and Rs5.6 million, the tax rate has been reduced from 35% to 29%. Taxpayers in this bracket would pay Rs541,000 plus 29% of the amount exceeding Rs4.1 million.

Salaried individuals earning between Rs5.6 million and Rs7 million annually would pay Rs976,000 plus 32% of the amount exceeding Rs5.6 million. The applicable rate has been cut from 35% to 32%.

The government has proposed abolishing the 9% surcharge applicable to salaried individuals earning more than Rs10 million annually, allowing affected taxpayers to retain a larger share of their income. The surcharge had already been reduced from 10% to 9% in the previous fiscal year and is now proposed to be removed entirely.

The federal budget for FY27 carries a total outlay of around Rs18.77 trillion, compared with Rs17.6 trillion in the outgoing fiscal year.

The government has allocated Rs8.054 trillion for interest payments during the next fiscal year.

The budget targets gross domestic product growth of 4% in FY27, compared with estimated growth of 3.7% in FY26.

Inflation is projected at 8.2%, against an estimated 7% in the outgoing fiscal year.

The government has also set a fiscal deficit target of 3.6% of GDP and a primary surplus target equivalent to 2% of GDP.