ISLAMABAD: The government is considering reducing the income tax burden on salaried individuals in the upcoming budget while avoiding increases in salaries and pensions, in an effort to provide balanced fiscal relief to employees in both the public and private sectors.
Sources told Dawn that Finance Minister Muhammad Aurangzeb is keen to lower tax rates and possibly increase the taxable income threshold for salaried individuals, acknowledging their comparatively larger contribution to national revenue than retailers, wholesalers, exporters and the real estate sector.
Officials said the government may keep salaries and pensions unchanged at current levels and instead use the resulting fiscal space to offer tax relief. One official explained that increasing salaries often pushes employees into higher tax brackets, leaving government workers with little improvement in their actual take-home income.
The official said that under the proposed plan, lower tax rates and a higher taxable income threshold would allow government employees to remain financially better off even without salary increases. “Government employees would not be worse off financially. That is neither the idea nor the intention,” the official said.
Government salaries have risen by more than 60 per cent over the last four years, while wages in the private sector have largely remained stagnant amid persistent inflation and slower economic growth. Officials said the tax policy office, along with independent consultancy firms, is currently preparing different proposals that will be discussed with the IMF mission during budget consultations beginning on May 15.
Sources added that the development programme could also face further cuts and may be reduced to a minimal allocation. However, final decisions regarding income tax relief, salaries and development spending are expected to emerge after discussions with the IMF.
Last year, the federal government faced an additional financial burden of more than Rs170 billion due to increases in salaries and pensions, while the financial impact on provinces was more than twice that amount. Officials believe that even a portion of these funds could substantially ease the income tax burden on salaried taxpayers.
The salaried class reportedly paid more than Rs425bn in taxes during the first nine months of the current fiscal year. This amount was more than double the roughly Rs200bn contributed by the real estate sector and significantly higher than the combined tax revenue generated by wholesalers, retailers and exporters.
Officials noted that salaried individuals have not only contributed the highest share of tax revenue but have also faced rising household expenses because of inflation, particularly following the Middle East crisis.
However, the government clarified that salary increases already approved for employees working on Public Sector Development Programme (PSDP) projects would remain protected. Last month, after a four-year gap, the government approved a 20 to 35pc increase in minimum salaries for PSDP employees, effective from July 1, 2026.
Their salaries were last revised on April 1, 2022. According to a finance ministry office memorandum, PSDP employees had previously faced reductions of up to 28pc in annual increments and 14pc in maximum salaries. During the same period, salaries of other government employees, including finance ministry staff, increased by more than 60pc.