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ISLAMABAD, Jun 10 (APP):Minister for Finance and Revenue Muhammad Aurangzeb on Tuesday announced major tax relief measures for salaried persons, construction sector, and purchase of immovable property besides introducing tax credit to provide loans to construct low-cost houses.
In his speech while presenting the federal budget 2025-26 in the National Assembly, the finance minister said that under the direction of Prime Minister Shehbaz Sharif, the tax burden on the salaried class is being reduced in the upcoming fiscal year. In this regard, he said a significant reduction in income tax rates is proposed for salaried people in all income slabs.
This relief will not only simplify the tax structure but will also ensure a balance between inflation and take-home salary by reducing the tax burden on the middle-income earners.
The tax rate for those earning between Rs. 600,000 and Rs. 1.2 million has been reduced from 5% to just 1%. Furthermore, it is also proposed to reduce the tax amount for salaried people earning between Rs. 1.2 million and
Rs 2.2 million from Rs. 30,000 to Rs. 6,000 and the minimum tax rate is also proposed to be reduced to 11% from 15%.
Similarly, a reduction in tax rate is being proposed for those earning higher salaries. The tax rate for those earning between Rs. 2.2 million and Rs. 3.2 million is proposed to be reduced from 25% to 23%. This move reflects the government’s commitment to making taxes fairer and reducing the burden on salaried individuals, the finance minister said.
In order to stop brain drain from the country, he said that the government has proposed to remove one percent surcharge on the people having income of more than 10 million.
He said the super tax rate on the corporations earning annual income between Rs 200 million to 500 million is being reduced by 0.5%.
In the construction sector, the government has also proposed to reduce the rate of Withholding Tax on the purchase of property from 4% to 2.5%, from 3.5% to 2%, and from 3% to 1.5%.
Likewise, the finance minister also announced to eliminate the federal excise duty of up to 7% imposed last year on the transfer of commercial properties, plots, and houses.
Furthermore, he said tax credit is being introduced for houses up to 10 marla and flats of up to 2000 sqft to provide loans for the construction of low-cost houses and to encourage mortgage.
The government has also proposed to reduce the stamp paper duty on the purchase of property in Islamabad from 4% to 1%. He hoped that the provinces will also support the federal government’s move by slashing heavy taxes imposed on the immovable property.
He said the tax rate on the interest income has been proposed to increase from current 15% to 20%. However, he made it clear that this increase will not apply on the national savings and small scale savings.
The finance minister highlighted that new tax was being introduced for e-commerce platforms, courier services and other digital services.
He said the government has proposed 5% tax on the income of pensioners of up to 70 years, whose annual pension exceeds Rs 10 million. He made it clear that the government has no intention to impose tax on the low and middle income pensioners.
In order to promote cashless economy, the government has proposed to increase the advance tax rate on withdrawing cash for the non-filers from current 0.6% to 1%.
“We are making necessary reforms to remove loopholes, improve equity and make tax laws easier to comply with,” the finance minister said adding that rental income from commercial properties will now be recognized at a standard rate of 4% of the fair market value. This will limit the discretionary powers of the tax authorities.
The finance minister said the government was going to propose steps to improve enforcement, reduce tax theft and promote transparency in the tax system.
He said that in order to encourage local manufacturing of solar panels, the government has proposed to impose 18% sales tax on the import of solar panels.
Similarly, the finance minister said the government has decided to remove the tax exemption for the newly merged districts of KP and Balochistan. He said the exemption will be removed step wise during next five years.
He informed that the government has decided not to impose any further tax on fertilizers and pesticides.
The finance minister said in order to discourage fossil fuel in the country, the government has proposed to impose Rs 2.5 carbon levy on one liter of petrol, high speed diesel and furnace oil which will be increased to Rs 5 per liter from the fiscal year 2026-27. Furthermore, petroleum levy on furnace oil will be imposed as per the government announcement.
He said the government has also decided to refinance the current expensive government debts of power sector through cheap and Sharia compliance bank financing to avoid extra expenditures.
He said the government has also proposed to impose additional levy on the import and purchase of cars with petrol and diesel engines.
He said the FBR’s tax-to-GDP ratio which was only 8.8 percent as on June 30, 2024, has been increased to 10.3% in first nine months of current fiscal year and is expected to further increase to 10.4 percent by the end of June 2025.
Federal non-tax revenues have also increased to 1.2 percent of GDP compared to 0.8 percent last year. “Overall, federal revenues are now 11.6 percent of GDP and if we include the provinces’ 0.7 percent tax-to-GDP ratio, the national tax-to-GDP ratio will be 12.3 percent by the end of the current fiscal year,” he added.
As regards relief measures for the salaried persons, the finance minister announced that the government has proposed 10% increase in the employees (BPS 1-22) of the federal government.
Likewise, he said 7% increase in the pensions of the retired employees has also been proposed.
For handicapped employees, the special conveyance allowance is being increased from Rs 4000 to Rs 6000.
In order to reduce disparities among the employees of various departments, provision of 30% disparity reduction allowance has also been proposed for the eligible employees.
Likewise, special relief allowance has also been proposed for the officers/soldiers and JCOs of the armed forces.