Where the tax cut lands

Ask any salaried Pakistani what the budget means to them, and the answer is rarely about deficits or current accounts. It is about the line on the salary slip that says income tax deducted. For too many years, that line moved in only one direction.

The Federal Budget 2026-27, taken together with the relief already delivered in the previous cycle, one hopes will mark a deliberate shift in the politics of personal taxation in favour of the country’s middle-income earners.

The federal information minister has clarified that the burden of personal income tax in the upcoming budget cycle will not fall on people earning Rs35,000 a month. It is concentrated in the upper-income strata, those earning more than Rs8 million a month.

The arithmetic of why this can be possible deserves attention because it is connected to the bigger reform story. Tax collection grew 26 per cent in FY25. The FBR tax-to-GDP ratio climbed to 10.3 per cent from 8.8 per cent the year before. Digital invoicing has gone live with more than 34,000 taxpayers. Forty-three thousand point-of-sale machines have been installed, covering 38 per cent of tier-one retailers. The faceless appraisement and examination regime has produced an 18 per cent revenue increase across 20 value chains. The annualised revenue impact from monitoring of sugar and cement alone is Rs82 billion.

In practice, this means the FBR has been able to broaden the tax net without leaning harder on the segment that was already paying. The other piece of the salaried class story is what is happening to the cost of living that the take-home pay must cover. Inflation has cooled to 6.1 per cent in the first nine months of FY26, against 4.7 per cent in the same period last year, with the trajectory continuing to stabilise. The State Bank’s policy rate has been halved from 22 per cent in June 2024 to 11.5 per cent today, which has flowed through into lower auto financing rates, lower mortgage rates and lower personal loan costs.

Electricity tariffs have moved in the right direction too. The cost of electricity has come down by Rs10.31 per unit between June 2024 and June 2025, and by Rs9.01 per unit between March 2024 and April 2026. For the average consumer, there has been no increase in electricity tariffs over the past two years. The Bijli Sahulat package and the cut in the EV tariff from Rs71 to Rs39 have offered targeted relief, and the PTV fee has been eliminated outright.

The salaried class will, of course, continue to make the point that life remains hard. That point is fair, and no policymaker should pretend otherwise. But the direction has changed. The household that two years ago was being squeezed from both ends, by rising tax deductions and rising bills, is now being relieved on both ends simultaneously. The relief is not yet large enough to undo the strain of the preceding years, but it is the first sustained relief the segment has seen in a long time.

What the upcoming budget needs to do is hold the line. The lower-slab reductions need to be preserved. Corporate sector formalisation needs to continue so that the relief at the bottom can be financed. The trader and retailer taxation scheme needs to bring new revenue into the system rather than leaving the existing payers to plug the gap.

For the salaried Pakistani reading the budget speech, the test is simple: does the take-home pay improve, and does the cost of running a household stabilise? On both counts, the trajectory of the past two years has been positive.

The writer is an Islamabad-based columnist and public finance researcher.

Disclaimer: The viewpoints expressed in this piece are the writer's own and don't necessarily reflect Geo.tv's editorial policy.

Originally published in The News