The government revealed a 7 percent increase in salaries and pensions for public sector employees as part of the federal budget for the fiscal year 2026-27. Finance Minister Muhammad Aurangzeb presented the comprehensive Rs18.771 trillion budget in parliament, also introducing income tax relief measures targeting the salaried class.
These salary and pension enhancements form a key component of a broader relief package aimed at alleviating inflationary challenges faced by government workers. Aurangzeb highlighted that the tax relief proposal for salaried individuals spans four income brackets, implemented under the guidance of Prime Minister Shehbaz Sharif.
Specifically, the income tax rate for individuals earning between Rs2.2 million and Rs3.2 million annually will be lowered from 23 percent to 20 percent. Those with annual incomes ranging from Rs3.2 million to Rs4.1 million will see their tax rate reduced from 30 percent to 25 percent. Meanwhile, taxpayers earning between Rs4.1 million and Rs5.6 million will experience a cut from 35 percent to 29 percent, and individuals with incomes between Rs5.6 million and Rs7 million will have their rate decreased from 35 percent to 32 percent.
In a significant development for businesses, the government plans to eliminate the super tax on annual incomes between Rs150 million and Rs500 million, while lowering the rate from 10 percent to 8 percent for entities with higher earnings. Additionally, the property transfer tax has been halved from 2.5 percent to 1.25 percent.
The budget sets the total outlay at Rs18.771 trillion, with the Federal Board of Revenue (FBR) tasked with a tax collection target of Rs15.264 trillion. Non-tax revenue is estimated at Rs5.336 trillion, contributing to a net federal income projection of Rs11.751 trillion.
Allocations include Rs1.1 trillion for the Public Sector Development Programme (PSDP), Rs1.091 trillion for subsidies, and Rs1.071 trillion for civil administration expenses. Furthermore, Rs2.68 trillion has been earmarked for the Benazir Income Support Programme (BISP), as well as for Azad Jammu and Kashmir, Gilgit-Baltistan, and the merged districts of Khyber Pakhtunkhwa.
