Targeted Tax Relief Proposed for Mid-Income Earners in FY2026-27 Budget

ISLAMABAD – The federal government is preparing to provide significant tax relief to a large section of the salaried class in the upcoming budget for the financial year 2026-27, which is being termed as a positive development for those working in the formal economy.

According to official sources, the government is considering a significant reduction in the tax burden, especially for those employees who earn between Rs 230,000 and Rs 341,000 per month. The move is aimed at providing relief to the middle and upper-middle-income groups and encouraging the formal economy.

Under the proposed proposals, people with a monthly income of Rs 230,000 to Rs 300,000 are likely to get significant relief compared to the current tax system. Similarly, relaxation in tax rates is also being considered for employees with a monthly income of Rs 266,000 to Rs 341,000.

Sources say that the government is also considering reducing the maximum income tax rate from 35 percent to around 30 percent. If approved, this proposal would be the most significant tax relief for the salaried class in recent years.

The government has proposed these measures at a time when Pakistan is implementing fiscal discipline and revenue growth targets under the International Monetary Fund (IMF) program. For the next fiscal year, the Federal Board of Revenue (FBR) is being given a target of collecting Rs1.53 trillion in revenue, which is about 18 percent more than the current fiscal year.

Although there is a proposal for relief for middle and relatively high-income employees, there is no immediate possibility of any major change in the tax structure for those earning between Rs100,000 and Rs183,000 per month. Similarly, it has been proposed to maintain the tax exemption limit for those earning up to Rs600,000 per year.

Economists say that tax relief will not only increase the purchasing power of employees but can also boost consumption and business activities in the economy. However, the government will also have to focus on new sources of revenue and effective tax enforcement to achieve its revenue targets.

According to budget documents, the government is planning to raise hundreds of billions of rupees through new revenue-raising measures and tax enforcement. Officials say a balanced strategy is being adopted to ensure fiscal stability, promote investment and create employment opportunities.

Economic circles are calling the upcoming budget crucial in terms of whether the government, on the one hand, meets the requirements of the IMF program and, on the other, provides real relief to the salaried class.