Budget FY26: Aurangzeb announces major tax relief for salaried class, solar sector

Finance Minister Muhammad Aurangzeb, in his address to the Senate Saturday, announced key relief measures in the federal budget for FY2025-26, including a significant income tax cut for the salaried class and a reduction in General Sales Tax (GST) on imported solar panels.

He emphasised that individuals earning between Rs600,000 and Rs1.2 million annually will now be taxed at just 1%, down from 2.5% proposed in the budget for FY2025-26.

It is pertinent to mention that, according to the budget proposals for FY26, the tax rate for those earning between Rs600,001 and Rs1.2 million was reduced to 2.5% from 5%.

Pakistan salaried class rejects govt’s claim of giving relief in income tax

Addressing the Senate on Saturday, the finance minister said that low- and middle-income individuals play a vital role in our economy. “This is the segment that endures inflation and pays taxes,” he acknowledged.

The Senator said that the proposal to reduce income tax on this salaried class was already part of the budget suggestions.

“In this regard, the government, amid directives from the prime minister, has reduced the income tax rate for those earning between Rs600,000 and Rs1.2 million annually — from 2.5% to just 1%,” he told the house.

The minister was of the view that the implementation of a 1% income tax rate is both “a practical and symbolic recognition” by the government that it does not want to burden this class.

“We hope this step will not only increase compliance but also restore their confidence in the tax system,” he said.

Meanwhile, Aurangzeb stated that the salaries and pensions of government employees have been increased by 10% and 7%, respectively.

The finance minister reiterated that the government did not introduce a mini-budget during the outgoing fiscal year and maintained fiscal discipline.

He informed the upper house that the federal government expenditure for FY26 has increased marginally by 1.9%, far lower than in previous years.

GST on solar panels lowered to 10%

Additionally, Aurangzeb told the Senate that the proposed 18% GST on solar panel imports has been lowered to 10% following consultations with lawmakers.

“The government in its budget proposed to impose an 18% GST on imported solar panels. This was done to protect local industries and provide a level playing field, and promote the development and investment in solar technology in Pakistan,” he said.

However, in light of detailed deliberations on the budget in both houses, the government has decided to reduce the proposed tax to 10%. Moreover, this tax will apply only to 46% of imported components, said Aurangzeb.

“With this measure, the price of solar panels will increase by 4.6%,” he said, adding that the government remains committed to promoting renewable energy.

Aurangzeb informed the house that the government has received reports of profiteering and hoarding of solar panels by certain elements.

“It is condemnable that these opportunistic actors have artificially increased prices even before the proposed measure has come into effect. I strongly warn such elements that the government will take every possible step in the public interest,” he said, adding that legal action will be taken against those involved.