Budget 2025-26: Salaries, pension hiked, income tax rates slashed

The Federal Budget 2025-26, with a total outlay of 17573 billion rupees has been announced, encapsulating measures aimed at promoting inclusive and sustainable economic growth.

Presenting the budgetary proposals for the next fiscal year in the National Assembly on Tuesday evening, Minister for Finance and Revenue Muhammad Aurangzeb said this budget is a beginning of a strategy, crafted to promote competitive economy. 

Revenue receipts, FBR target

The Finance Minister said the net revenue receipts have been estimated at 11072 billion rupees. The FBR collections are likely to be 14131 billion rupees, which is 18.7 percent higher than the current fiscal year and non-tax revenues will be 5147 billion rupees.

He said the provincial share in the Federal receipts will be 8206 billion rupees.

GDP growth projection 

Muhammad Aurangzeb said the economic growth rate is expected to be 4.2 percent and inflation 7.5 percent during the next financial year.

The budget deficit will be 3.9 percent of GDP, while primary surplus will be 2.4 percent of GDP.

Defense budget

The Finance Minister said the country's defence is the government's most important priority. He said 2550 billion rupees are being provided for this national service.

He said 971 billion rupees are being allocated for the civil administration expenditures, while 1055 billion rupees have been reserved for the pension expenditures. He said 1186 billion rupees are being earmarked for subsidy on electricity and other sectors.

Pension, salary hike, tax relief

The government, despite financial constraints, has decided to take a number of steps to provide relief to the government employees and reduction in the taxes of the salaried class.

The government has proposed 10 percent increase in the salaries of government employees from Grade-1 to Grade-22.

Besides, seven percent increase has been proposed in the pension of the retired government employees. 

Read more: Budget FY26: Aurangzeb says FBR overhaul crucial to meet Rs14.1tr tax target

He said ratio of tax from the employees getting six to twelve lac rupees salary has been reduced to 2.5 percent from the existing five percent. Tax amount has been reduced to 6000 rupees from existing 30,000 rupees on the employees getting twelve lac rupees.

Similarly, it has been proposed to reduce tax from 15 to 11 percent on the employees receiving salary up to twenty two lac rupees.

Moreover, it has been proposed to reduce ratio of tax from 25 percent to 23 percent from the employees getting salary from 22 lac to 32 lac rupees.

The government has also proposed to reduce one percent surcharge on the people getting more than ten million rupees salary to prevent brain drain of highly professional and skillful people abroad.

Corporate tax

Talking about relief measures to ease taxes on the corporate sector, Muhammad Aurangzeb said a reduction of 0.5 percent in the super tax has been proposed for the corporations generating 200 million to 500 million rupees annual income.

He said this concession indicates government's resolve to rationalize the ratio of the corporate tax.

Real estate relief

The Minister said withholding tax on purchase of property is being reduced from four percent to 2.5 percent and three point five percent to 2.5 percent as well as three percent to 1.5 percent. 

He said there is proposal to completely abolish the Federal Excise Duty up to seven percent on the transfer of commercial properties, plots and Houses to lessen burden on the construction sector. To encourage mortgage for the provision of loan on low cost housing, tax credit is being introduced on Houses upto ten Marla and flats of 2000 square feet.

He said the government will promote mortgage financing and comprehensive mechanism will be introduced in this regard.

PSDP

An amount of four thousand two hundred twenty-four billion rupees has been earmarked for the National Development Plan in the budget for next fiscal year.

This includes Federal PSDP  of one thousand billion rupees, Provincial Annual Development Programs of 2,869 billion and State Owned Enterprises Development Outlay of three hundred fifty-five billion rupees. 

The Annual Development Plan emphasizes public investment to drive private sector-led growth, tackle structural constraints, enhance climate resilience, and improve access to health and education. 

The PSDP 2025-26 portfolio has been aligned with the objectives of URAAN Pakistan, while priority has been attached to high impact, near completion, foreign funded projects and new initiatives of national importance. 

Sustainable energy

Reaffirming the government's commitment to provide cheap and sustainable energy to the consumers, the Finance Minister said that 90.2 billion rupees have been proposed to be allocated for forty seven development schemes of energy sector.