Proposal to cut tax rate for first slab of salaried class to 1% rejected

However, documents showed that tax rate for first slab was brought down from 5 to 1%

By Our Correspondent
June 11, 2025
A representational image of tax shows wooden boxes with letters T, A and X written on them. — Reuters/File
A representational image of tax shows wooden boxes with letters T, A and X written on them. — Reuters/File

ISLAMABAD: The federal cabinet has turned down a proposal to reduce the tax rate for the first income tax slab for salary earners from Rs0.6 million to Rs1.2 million, from 5pc to 1pc.

The cabinet decided to slap 2.5pc tax rate on monthly earners from over Rs50,000 to Rs100,000 per month against the proposal to bring down the rate to 1pc. For the income tax slab from Rs1.2 to Rs2.4 million, the tax rate has been proposed to reduce from 15 to 11pc.

However, documents showed that the tax rate for the first slab was brought down from 5 to 1pc. But the federal cabinet turned down the proposal and slapped tax rate of 2.5pc for income earners in the range of Rs0.6 million to Rs1.2 million in order to generate additional Rs9 billion which will be utilized to hike salary and pension up to 10 percent for public sector employees. The cabinet meeting witnessed a lengthy and heated debate on increasing the salary and pension because the Finance Division had proposed a hike in salary and pension by 6 to 7pc respectively in line with the agreement with IMF. Then the cabinet brought changes in the structure of income of first salary slabs from Rs0.6 million to Rs1.2 million whereby the FBR proposed a reduction in the tax rate from 5 to 1pc. However, the federal cabinet approved slapping 2.5 percent tax rate on this slab. It will fetch additional Rs9 billion so the salary and pension was increased up to 10pc. The 10 percent surcharge on income of more than Rs10 million salary has been brought down to 9pc.

A 15pc tax rate imposed on annual income between Rs1.2 million and Rs2.2 million has been reduced by 4%. The new tax is now set at 11%.

On salary to Rs2.2 million, who used to pay a maximum of Rs330,000 annually in tax, will now have to pay Rs242,000. The salary income between Rs2.2 million and Rs3.2 million: The tax rate has been lowered from 25% to 23%, providing relief to higher-earning salaried individuals.

A salary income up to Rs2.2 million, whose maximum tax was previously Rs550,000 per year, will now have Rs506,000 deducted annually.