The federal government is considering reducing income tax rates for salaried individuals in the upcoming budget while keeping salaries and pensions unchanged, media reports have said.
Sources have told a private media outlet that Finance Minister (FM) Muhammad Aurangzeb wants to provide relief to salaried employees by lowering tax rates and possibly increasing the taxable income threshold. The move is being discussed in view of the sector’s higher tax contribution compared to retailers, wholesalers, exporters and the real estate sector.
Officials stated that the government is looking at the option of avoiding increasing salaries and pensions, instead using the fiscal space for tax relief measures.
“There is no reason to increase salaries if it pushes employees into higher taxable income brackets, leaving government employees with little to no increase in take-home pay,” an official remarked.
The official maintained that lower tax rates and higher income thresholds would still leave government employees in a better financial position even without a salary raise.
“Government employees would not be worse off financially. That is neither the idea nor the intention,” he added.
Government salaries have increased by more than 60 percent during the last four years, while wages in the private sector have largely remained stagnant due to inflation and slower economic growth.
Officials said that the tax policy office, along with independent consultancy firms, is preparing different proposals ahead of budget consultations with the IMF mission starting from May 15.
Sources said that the government may also further cut the development programme allocation, although final decisions on taxation, salaries and development spending are expected after talks with the IMF.
Last year, the federal government faced an additional financial burden of over Rs170 billion after increasing salaries and pensions, while the impact on provinces was reported to be more than double.
According to officials, even part of that amount could be used to ease the tax burden on salaried individuals.
Data from the current fiscal year showed that the salaried class paid more than Rs425 billion in taxes during the first nine months, compared to around Rs200 billion contributed by the real estate sector. The amount also exceeded the combined tax contribution of wholesalers, retailers and exporters.
Officials noted that salaried individuals have continued to face higher household expenses due to inflation, especially after the Middle East crisis.
Meanwhile, officials clarified that salary increases already announced for employees working on Public Sector Development Programme (PSDP) projects would remain protected.
Last month, the government approved a 20 to 35 percent increase in minimum salaries for PSDP employees after a four-year gap. The revised pay packages will take effect from July 1, 2026.
According to a finance ministry memorandum, PSDP employees had previously faced cuts of up to 28 percent in annual increments and 14 percent in maximum salaries, while salaries of other government employees increased by more than 60 percent during the same period.
