ISLAMABAD: The federal government is weighing a combination of salary increases, pension adjustments, and tax relief measures for public sector employees in Budget 2026-27, although the final package will depend on fiscal space available under the International Monetary Fund (IMF) programme.
According to budget proposals, the government is considering ad-hoc salary and pension increases of 5 percent, 7.5 percent, or 10 percent for civilian and military employees to offset the impact of inflation, which is expected to average around 7.5 percent during the current fiscal year.
However, the more significant development for salaried taxpayers could be the government’s proposal to reduce the tax burden on salaried individuals by 5 percent to 10 percent. The measure is aimed at providing relief to employees who have faced rising tax deductions and increasing living costs in recent years.
Sources said the Ministry of Finance has prepared multiple options for both salary revisions and tax relief, which will be discussed with the IMF before being finalized. Any reduction in income tax rates or adjustment in tax slabs will require approval from the federal cabinet and incorporation into the Finance Bill 2026.
The government is also moving ahead with pension reforms by extending the Defined Contributory Pension (DCP) system to the armed forces. The pension framework was already introduced for newly recruited civilian government employees as part of efforts to reduce future pension liabilities and improve fiscal sustainability.
Despite plans to provide relief, the government remains under pressure to meet strict IMF-backed fiscal targets. Pakistan has committed to achieving a primary budget surplus of 2 percent of GDP, estimated at around Rs. 3 trillion, in the next fiscal year.
To meet this target, authorities are expected to broaden the tax base, strengthen tax enforcement, and introduce additional revenue measures in Budget 2026-27. As a result, any tax concessions for salaried individuals will likely need to be balanced through higher revenue collection from other sectors of the economy.
The upcoming budget is expected to determine whether salaried employees receive meaningful tax relief alongside salary increases, or whether fiscal constraints limit the government’s ability to reduce the tax burden while maintaining IMF commitments.
