Pakistan announces income tax relief for salaried class in FY2025-26 budget

Corporate employees watching television screens as Pakistan Finance Minister Muhammad Aurangzeb presents Pakistan’s $62 billion federal budget for fiscal year 2025–26, in Islamabad on June 10, 2025. (APP)
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Updated 10 June 2025
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Pakistan announces income tax relief for salaried class in FY2025-26 budget

  • Tax rate for those earning between $2,128–$4,255 annually to be cut from 5% to 2.5%
  • Pakistan’s tax-to-GDP ratio remains below 10%, among the lowest in the region

ISLAMABAD: Pakistan announced significant income tax relief for the salaried class on Tuesday as it announced its federal budget for the fiscal year 2025-26, aiming to ease the burden on working people amid high inflation and economic uncertainty.

Pakistan’s tax-to-GDP ratio remains below 10%, among the lowest in the region. The government has pledged to raise this ratio to 14% through tax reforms, digital enforcement, and expanding the tax base.

“First of all, we are providing relief where it is most needed, relief for the salaried class,” Finance Minister Muhammad Aurangzeb, presenting his first full-year budget in the National Assembly, said.

“In this regard, there is a proposition for a significant reduction in the income tax slabs for the working class.”

Aurangzeb said the income tax rate for individuals earning between Rs600,000 and Rs1.2 million ($2,128–$4,255) annually would be cut from 5% to 2.5%.

“For those earning up to Rs22,000,000 [$7,788], the tax rate has been proposed at 11% instead of 15%. Similarly, those who earn a higher salary, there is a proposition of tax reduction,” the finance minister said.

“For those who are earning between Rs22,000,000 [$7,788] up to Rs32,000,000 [$11,328], the tax rate has been proposed to be reduced from 25% to 23%.”

For high-income earners making over Rs10 million ($35,460) annually, a 1% reduction in the additional surcharge has been recommended to help curb the ongoing brain drain, the minister said.

Aurangzeb described the changes as part of broader efforts to simplify the tax structure and “strike a balance between inflationary pressures and take-home pay.”

The federal budget, with a total outlay of Rs17.57 trillion ($62 billion), comes as Pakistan seeks to stabilize its economy under a $7 billion International Monetary Fund (IMF) bailout program approved last year.

The budget also includes a 20% increase in defense spending, while total government expenditure is expected to be 7% lower year-on-year compared to the last fiscal, reflecting fiscal consolidation goals tied to IMF negotiations.

The proposed budget will be debated in parliament before final approval.


Pakistan partially rolls back solar policy, keeps old net-metering terms for pending applicants

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Pakistan partially rolls back solar policy, keeps old net-metering terms for pending applicants

  • Decision applies to applications submitted before Feb. 8, which will be processed under previous net-metering regulations
  • Move follows public backlash after Pakistan cut buyback rates for rooftop solar power under new billing framework

ISLAMABAD: Pakistan’s power minister has ordered electricity distribution companies to process all rooftop solar net-metering applications submitted before Feb. 8 under the previous, more favorable rules, according to a government statement released Thursday.

The decision comes after days of public criticism over new regulations that lowered the rate paid to solar users for surplus electricity, part of broader reforms aimed at easing financial pressure on loss-making power utilities.

The directive by Power Minister Sardar Awais Leghari applies nationwide, including the private utility K-Electric, and affects thousands of households and businesses awaiting approval to connect solar systems to the national grid.

“All electricity distribution companies, including K-Electric, will provide the net-metering facility for applications submitted up to February 8,” the ministry said in the statement, adding immediate implementation orders had been issued.

Authorities said 5,165 pending applications fall under the decision, adding about 250.822 megawatts of capacity to the national grid. The ministry said the move would remove uncertainty for consumers and directed companies to maintain transparency in processing requests.

Pakistan introduced grid-connected rooftop solar and net-metering in 2015 during a worsening power shortage, allowing consumers to sell excess electricity to the grid at the same tariff they paid utilities, a policy designed to encourage renewable adoption and reduce outages.

Over the past three years, soaring electricity prices and frequent blackouts triggered a rapid solar boom, with households and businesses installing panels to cut costs. Solar’s share of the energy mix rose sharply and tens of thousands of new connections were added annually.

Earlier this month, however, regulators replaced the net-metering regime with a net-billing framework separating purchase and sale prices, meaning consumers would receive a lower, market-linked rate for exported electricity while paying full tariffs for grid power.

Officials argued the change was necessary because widespread rooftop generation was reducing utility revenues and worsening the country’s circular debt crisis. Consumers and industry groups criticized the move, saying it undermined investment certainty.

The government has since moved to protect existing users and now pending applicants from the revised pricing mechanism, while new connections after the cutoff date will fall under the updated billing system.