Govt proposes up to 10% tax cut for salaried class in 2025-26 budget

A proposal to reduce the tax burden on the salaried class by up to 10% is currently under consideration, as the government has presented key elements of its proposed taxation measures for the 2025-26 budget to the International Monetary Fund (IMF), according to a news report. 

The proposed tax relief could reduce the tax burden for salaried individuals by up to Rs50 billion. These proposed reductions are part of broader discussions with the IMF, with meetings set to take place between May 14 and May 22, 2025, although the exact venue for the talks has not been finalised. The discussions will focus on finalising the budget and reconciling the financial gaps that may arise due to the proposed tax relief.

“The government has shown a willingness to take additional taxation measures to offset the revenue shortfall from these relief measures,” sources said. 

In the first ten months of the current fiscal year, salaried individuals have contributed over Rs450 billion in taxes, outpacing other sectors such as retail and export. In comparison, they paid Rs368 billion in taxes during the previous fiscal year (2023-24). 

Initially, the increase in tax rates on the salaried class was expected to raise an additional Rs100 billion, but actual collections have surpassed projections, with estimates now suggesting that the salaried class will contribute between Rs225 to Rs250 billion more, bringing the total tax contribution from this group to Rs550 billion by the end of June 2025.

While there has been an increase in tax payments, particularly among middle-income earners, higher-income individuals, particularly those earning over Rs1 million per month, have been hit hardest, facing a 10 percent surcharge on top of their existing 40 percent tax rates. 

Critics argue that such tax rates disproportionately impact higher earners, leading to discontent among those affected.

An official spokesperson for the Federal Board of Revenue (FBR) stated that the proposals are still under internal review and that further discussions regarding the tax rates for the salaried class are ongoing.