Govt raises salaries by 7 per cent in new budget

ISLAMABAD: The government on Friday announced a 7 per cent increase in salaries and pensions for government employees as part of the federal budget for fiscal year 2026-27.

Finance Minister Muhammad Aurangzeb presented the Rs18.771 trillion budget in parliament and also unveiled income tax relief measures for the salaried class.

He said the salary and pension increases were part of a broader relief package aimed at easing inflationary pressures on public sector employees.

Aurangzeb said the government had proposed tax relief for salaried individuals across four income slabs following the directions of Prime Minister Shehbaz Sharif.

Under the proposed structure, individuals earning between Rs2.2 million and Rs3.2 million annually will see their income tax rate reduced from 23 per cent to 20 per cent.

For those earning between Rs3.2 million and Rs4.1 million, the tax rate will be cut from 30 per cent to 25 per cent.

The tax rate for annual incomes between Rs4.1 million and Rs5.6 million will be reduced from 35 per cent to 29 per cent, while those earning between Rs5.6 million and Rs7 million will see the rate lowered from 35 per cent to 32 per cent.

For businesses, the government has proposed abolishing the super tax on annual incomes ranging from Rs150 million to Rs500 million, while reducing the rate from 10 per cent to 8 per cent for higher-income entities. The property transfer tax has also been reduced from 2.5 per cent to 1.25 per cent.

The total size of the budget has been set at Rs18.771 trillion. The Federal Board of Revenue (FBR) has been assigned a tax collection target of Rs15.264 trillion, while non-tax revenue is projected at Rs5.336 trillion and net federal income at Rs11.751 trillion.

The government has allocated Rs1.1 trillion for the Public Sector Development Programme (PSDP), Rs1.091 trillion for subsidies and Rs1.071 trillion for civil administration.

He said that the governemnt has earmarked Rs2.68 trillion for the Benazir Income Support Programme (BISP), Azad Jammu and Kashmir, Gilgit-Baltistan, and the merged districts of Khyber Pakhtunkhwa.