This bulletin provides an overview of the main employment and income tax measures proposed in Finance Bill 2025, which currently awaiting approval from the National Assembly and subsequent Presidential assent.
The Finance Bill 2025 proposes measures to optimize revenue collection, simplify tax administration and redistribute the tax burden, affecting both salaried and non-salaried individuals. If approved, the legislation will be enforced from July 1, 2025.
Decrease in tax rates for salaried individuals
The Finance Bill introduces revisions to the tax slab rates for salaried individuals. While the maximum tax rate for salaried individuals remains unchanged at 35%, adjustments have been made within various brackets. Conversely, the maximum rate for non-salaried individuals remain 45%.
The following tables detail the proposed new tax bands and rates for salaried individuals:
| Sr No. | Taxable Income | Existing Rates | Proposed Rates |
| 1 | Where taxable income does not exceed Rs. 600,000 | 0% | 0% |
| 2 | Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,000 | 5% of the amount exceeding Rs. 600,000 | 1% of the amount exceeding Rs. 600,000
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| 3 | Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 2,200,000 | Rs. 30,000 + 15% of the amount exceeding Rs. 1,200,000 | Rs. 6,000 + 11% of the amount exceeding Rs. 1,200,000 |
| 4 | Where taxable income exceeds Rs. 2,200,000 but does not exceed Rs. 3,200,000 | Rs. 180,000 + 25% of the amount exceeding Rs. 2,200,000 | Rs. 116,000 + 23% of the amount exceeding Rs. 2,200,000 |
| 5 | Where taxable income exceeds Rs. 3,200,000 but does not exceed Rs. 4,100,000 | Rs. 430,000 + 30% of the amount exceeding Rs. 3,200,000 | Rs. 346,000 + 30% of the amount exceeding Rs. 3,200,000 |
| 6 | Where taxable income exceeds Rs. 4,100,000 | Rs. 700,000 + 35% of the amount exceeding Rs. 4,100,000 | Rs. 616,000 + 35% of the amount exceeding Rs. 4,100,000 |
Reduction in the rate of Surcharge under section 4AB:
In addition to the above, in the case of an individual deriving income chargeable under the head “Salary”, the surcharge payable under section 4AB has been reduced from 10% to 9% of the income tax payable where the taxable income exceeds rupees ten million, in a tax year.
The proposed change reduces the marginal tax rate, including the slab rate and surcharge under section 4AB, for salaried individuals from 38.5% to 38.15%.
Reduction in the rate of Super tax on high earning persons under section 4C:
A super tax has been imposed from the tax year 2022 and onwards at the specified rates on the income of every high earning person.
The Finance Bill 2025 has introduced amendments to the super tax rates for individuals earning income between 200 million and 500 million, with the rates reduced by 0.5%. The updated rates are as follows:
| Sr No. | Income under section 4C | For tax year 2025 – Existing | For tax year 2026 and onwards |
| 1 | Where income does not exceed Rs. 150 million | 0% | 0% |
| 2 | Where income exceeds Rs. 150 million but does not exceed Rs. 200 million | 1% | 1% |
| 3 | Where income exceeds Rs. 200 million but does not exceed Rs. 250 million | 2% | 1.5% |
| 4 | Where income exceeds Rs. 250 million but does not exceed Rs. 300 million | 3% | 2.5% |
| 5 | Where income exceeds Rs. 300 million but does not exceed Rs. 350 million | 4% | 3.5% |
| 6 | Where income exceeds Rs. 350 million but does not exceed Rs. 400 million | 6% | 5.5% |
| 7 | Where income exceeds Rs. 400 million but does not exceed Rs. 500 million | 8% | 7.5% |
| 8 | Where income exceeds Rs. 500 million | 10% | 10% |
Profit on debt under section 7B:
The rate of tax for profit on debt imposed under section 7B shall be:
The tax rate under section 7B applies as final taxation for non-corporate taxpayers earning profit on debt of up to Rs. 5 million.
Taxation of dividend income:
Currently, dividend from mutual funds is taxable at the rate of 15% except for dividend received from mutual funds deriving 50% or more income from profit on debt which is taxable at the rate of 25%.
It is proposed that dividend received from mutual funds deriving income from investments in both equity and debt securities be taxed at the rate of 15% and 25% respectively contingent upon proportionate income derived from average annual investment in equity and debt securities respectively.
Taxation of pension:
The proposed bill introduces a new sub-clause under section 149, mandating that any person responsible for making payments of pension, annuity, any supplement to a pension or annuity, or commuted pension to a former employee who is below 70 years of age and derives income solely from such sources shall deduct tax at the time of payment on any amount exceeding Rs. 10 million in a tax year. The applicable rates are as follows:
| Sr No. | Description | Proposed Rate of Tax |
| 1 | Where the amount of annual pension received does not exceed Rs. 10 million | 0% |
| 2 | Where the amount of annual pension received exceeds Rs. 10 million | 5% of the amount exceeding Rs. 10 million |
This deduction shall be made along with any tax required under section 4AB, after adjusting for:
Restriction on economic transactions by certain persons under section 114C:
The Tax Laws (Amendment) Bill, 2024 proposed the introduction of a new section, 114C, which defines the concept of an ‘eligible person’ and aims to restrict certain economic transactions involving ‘ineligible persons.’ It is worth mentioning that this law was originally not approved but is proposed to be re-introduced with certain amendments.
Proposed Restrictions for Ineligible Persons (subject to the Board’s notification):
1. Motor vehicles:
Applications for booking, purchase or registration of a motor vehicles will not be accepted by any manufacturers of motor vehicles or the vehicle registration authority of Excise and Taxation department.
2. Immovable property:
Applications or requests by ineligible persons to authorities responsible for registering, recording, or attesting transfers of immovable property that exceeds a specified aggregate value (notified by the Federal Board of Revenue, FBR) in a tax year shall not be accepted or processed by the authority.
3. Securities transactions:
Any person authorized to sell securities, including debt securities or mutual fund units, or to open and maintain accounts or clear such transactions, shall not sell, open an account, or clear the sale of securities or mutual funds for any ineligible person, whether an individual or an association of persons.
4. Banking transactions:
A banking company shall not open or maintain any current, savings, or investor portfolio securities account, except Asaan Accounts and Pensioner Accounts, in the name of any person notified by the FBR. Furthermore, it shall not allow cash withdrawals from any bank account of such person exceeding the limit prescribed by the FBR from time to time.
Exemptions from Restrictions:
Certain transactions are exempt from the above restrictions, including:
Definitions:
Eligible Person: A person, including their immediate family members, who has filed a return of income for the tax year immediately preceding the year of the transaction and possesses sufficient resources as disclosed in the wealth statement (in the case of individuals) or financial statements (in the case of companies or associations of persons) to justify the transaction. Alternatively, a person who has declared sufficient resources in their statement of sources of investment and expenditure.
Immediate family members in respect of an individual, shall include his parents, spouse and dependent children.
Sufficient Resources: This means having resources amounting to at least 130% of the declared cash and equivalent assets, including fair market value of gold, net realizable value of stocks, bonds, receivables, or any other cash equivalent asset.
Ineligible Person: A person who does not meet the criteria of an eligible person.
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