ISLAMABAD: The federal government has proposed a 10% hike in the salaries of government employees along with a 7% increase in the pension of retirees.
This salary increase plan was announced by Federal Finance Minister Muhammad Aurangzeb during his budget speech for the Fiscal Year 2025-26 in the National Assembly. If passed, it will apply to federal employees from Grade 1 to Grade 22.
Additionally, the monthly allowance for differently abled employees is proposed to rise from Rs4,000 to Rs6,000, an increase of Rs2,000.
Speaking in the National Assembly, with NA Speaker Ayaz Sadiq presiding, the finance minister described the budget as being presented at a very important time.
He said the economy has stabilized due to structural reforms, stating that various steps have been taken to improve economic conditions. The minister attributed recent policy changes to achieving economic stability.
Alongside the salary and pension increases, the FY26 budget proposes reductions in income tax rates for salaried individuals.
The largest tax relief is for those earning between Rs600,000 and Rs1.2 million per year. Their tax rate would decrease from 5% to 2.5%, so someone earning Rs1.2 million would pay Rs6,000 in taxes instead of Rs30,000.
People earning up to Rs2.2 million annually will also see benefits, with the tax rate dropping from 15% to 11%. Similar reductions are proposed for higher income groups as well.
For those earning between Rs2.2 million and Rs3.2 million, the tax rate is expected to decrease from 25% to 23%.
The government’s proposed budget for FY26 totals Rs17.57 trillion ($62 billion), a 7% reduction in overall spending. However, defence spending is set to increase by 20%, amid recent tensions with neighboring India.
The budget allocates Rs2.55 trillion ($9 billion) for defence in FY26, compared to Rs2.12 trillion in the current fiscal year.
Salaries and Pensions Increased Preproposal, Tax Rates Reduced
The budget proposes a 10% increase in government employees’ salaries and a 7% increase in pensions. If approved, the salary hike will apply to federal government employees from Grade 1 to Grade 22.
Income tax rates for salaried individuals have also been reduced. The finance minister stated that for annual salaries between Rs600,000 and Rs1.2 million, the tax rate has been lowered from 5% to 2.5%. For annual salaries up to Rs2.2 million, the minimum tax rate is proposed to be reduced from 15% to 11%.
For salaries between Rs2.2 million and Rs3.2 million per year, the tax rate is proposed to be reduced from 25% to 23%.
Tax Cuts on Property Transactions
The budget proposes reducing the federal excise duty on the transfer of plots and houses by 7%. Withholding tax on property purchases is proposed to be reduced from 4% to 2.5%, and in some cases from 3.5% to 2%. Stamp duty on property purchases in Islamabad is proposed to be reduced from 4% to 1%.
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18% Sales Tax on Online Shopping and Solar Panel Imports
The government has proposed an 18% sales tax on online shopping in the 2025-26 budget.
The finance minister said the fast growth of digital marketplaces is affecting traditional businesses that follow tax rules. To create fair competition, it is proposed that courier and logistics companies collect 18% sales tax from e-commerce platforms and deposit it to the government.
An 18% sales tax has also been proposed on the import of solar panels.
According to the budget details:
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Rs8,207 billion has been set aside for interest payments.
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Current expenditures are expected to reach Rs16,286 billion.
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The government’s net income is estimated at Rs11,072 billion.
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FBR revenue target is set at Rs14,131 billion.
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Non-tax revenue target is Rs5,147 billion.
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Rs1,000 billion has been allocated for the development programme.
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Rs2,550 billion has been reserved for defence.
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Rs1,055 billion has been proposed for pensions.
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Rs1,186 billion allocated as subsidies for electricity and other sectors.
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Rs1,928 billion allocated for grants.
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For ongoing expenses: Rs140 billion for Azad Kashmir, Rs80 billion for Gilgit-Baltistan, Rs80 billion for merged tribal areas of KP, and Rs18 billion for Balochistan.
Strong Defence and National Unity
Finance Minister said the armed forces showed great professionalism, bravery, and sacrifice in defending the country. Their actions strengthened Pakistan’s defence and raised its image globally. He said this proves that the Pakistani nation stands united in every crisis and is always ready to defend the motherland.
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Focus on Economic Stability and Growth
The finance minister added that the government’s next focus is economic stability, development, and public welfare. He said just like national security was strengthened with dedication, the same spirit will be used to stabilize the economy and support the people.
Successes in Past Year
He said that during the past one year, major steps were taken for economic recovery and reforms. Due to this:
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A primary surplus of 2.4% of GDP was achieved.
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Inflation dropped to 4.7%.
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Current account showed a surplus of $1.5 billion compared to a $1.7 billion deficit last year.
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The rupee remained stable.
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Remittances increased by 31% in the first 10 months, reaching $31.2 billion.
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Remittances are expected to reach $38 billion by year-end.
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State Bank reserves increased by $2 billion, expected to hit $14 billion by the end of the year.
The finance minister said tough decisions had to be taken, and the public made sacrifices that brought positive results. He said global financial institutions and rating agencies also recognised Pakistan’s economic progress.
Investor Confidence Improving
According to PWC, 83% of business leaders now trust the economy, up from 49%. The Overseas Chamber also reported record improvement in business confidence.
Public Expectations Rising
He said Gallup and IPSOS surveys show that people’s financial outlook has improved. Public expectations for a better future are now at the highest level in six years.
Better Credit Rating
Fitch upgraded Pakistan’s rating from ‘CCC+’ to ‘B-’, and Moody’s also noted economic improvement. The Asian Development Bank, World Bank, and IFC expressed confidence in Pakistan and announced major funding support.
FBR Reforms
The finance minister said the main economic issue was weak tax collection. Pakistan’s tax-to-GDP ratio was only 10%, which was not enough to run the country.
He said the FBR reported a tax gap of Rs5.5 trillion, meaning more than half of potential tax was not being collected. To fix this, the government set a target of raising the tax-to-GDP ratio to 14%.
He said FBR was not just part of the solution, but the foundation of it. Without reforming FBR, economic progress was not possible. That’s why a special FBR Reform Plan was launched under the Prime Minister’s direct supervision.
The plan, approved in September 2024, is based on three pillars: people, development, and technology.
