ISLAMABAD: The federal government on Friday announced a 7% increase in salaries and pensions for government employees as part of the Rs18.771 trillion budget for fiscal year 2026-27, while also unveiling a series of tax relief measures for the salaried class and businesses.

Presenting the federal budget in parliament, Finance Minister Muhammad Aurangzeb said the salary and pension increases form part of a broader relief package aimed at easing inflationary pressures on public sector employees.

The finance minister said the government had proposed income tax relief for salaried individuals in line with the directions of Prime Minister Shehbaz Sharif to provide greater financial support to taxpayers.

Under the proposed tax structure, individuals earning between Rs2.2 million and Rs3.2 million annually will benefit from a reduction in the income tax rate from 23% to 20%.

For taxpayers earning between Rs3.2 million and Rs4.1 million per year, the tax rate has been reduced from 30% to 25%.

Similarly, those with annual incomes ranging from Rs4.1 million to Rs5.6 million will see their tax rate lowered from 35% to 29%, while individuals earning between Rs5.6 million and Rs7 million annually will pay 32% tax instead of the existing 35%.

Aurangzeb also announced relief measures for the business community. The government has proposed abolishing the super tax on annual incomes between Rs150 million and Rs500 million, while reducing the super tax rate from 10% to 8% for higher-income entities.

In the property sector, the government has proposed reducing the property transfer tax from 2.5% to 1.25% in a move aimed at encouraging transactions and investment.

The finance minister said the total size of the federal 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 revenues are projected at Rs5.336 trillion.

According to the budget documents, net federal revenues are estimated 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 expenditures.

Aurangzeb further said that Rs2.68 trillion have been earmarked for social protection and regional development, including allocations for the Benazir Income Support Programme (BISP), Azad Jammu and Kashmir, Gilgit-Baltistan and the merged districts of Khyber Pakhtunkhwa.

He said the budget seeks to maintain economic stability, support vulnerable segments of society and promote sustainable growth while continuing fiscal consolidation efforts.