Holyrood has approved the establishment of a new income tax system for Scotland - a move which will benefit low earners but could hit hundreds of thousands of better-off workers.
Scottish Finance Secretary Derek Mackay insisted the changes he is bringing in will mean seven out of 10 taxpayers north of the border will be better off in 2018-19, but opposition politicians accused the SNP of breaking a key election promise.
After the changes were approved by 67 votes to 50, Mr Mackay said: "Scotland is set to become the lowest taxed part of the UK.
"Our progressive reforms to income tax will deliver greater tax fairness and additional funding to protect vital public services."
The new tax system - part of a package of tax and spending measures set out in the Scottish Government's Budget for 2018-19 - will see both the higher and top rate of income tax increased by 1p, rising to 41p and 46p respectively.
In addition the Scottish Government will levy a new intermediate rate of 21p on income between £24,000 and £43,430, as well as a 19p "starter rate" on earnings between £11,850 and £13,850.
Mr Mackay said: "I'm confident that these proposals will deliver the best outcome for the people and the economy of Scotland. The best deal anywhere in the UK."
But Scottish Conservative finance spokesman Murdo Fraser blasted the Scottish Government for the income tax rises, pointing out the SNP's 2016 Holyrood election manifesto included a pledge not to increase the basic rate.
Mr Fraser said: "This rise in income tax penalises hardworking Scottish families.
"It breaks a promise made by the SNP in 2016, and repeated dozens of times since.
"And, in making Scotland the highest-taxed part of the UK, it will condemn us to more years of sluggish economic growth, depriving the government of much-needed tax revenue as a result."
He had urged the Scottish Government to "start listening to all the voices expressing concerns about tax increases".
The Conservative added: "Every economic forecast has the Scottish economy growing at a fraction of the UK average in coming years."
While the Tories attacked the SNP over tax rises, Labour criticised the Scottish Government for not being radical enough.
Holyrood finance spokesman James Kelly said the devolution of income tax powers gave Scottish ministers the "chance to present a bold and radical budget".
He added: "The SNP tax plans fall massively short of what is required and it is the people of Scotland who will suffer, with a quarter of a million children living in poverty, performance in education on the slide, as the economy continues to falter and there is an NHS crisis where people struggle to get GP appointments.
"These tax proposals should be rejected because the SNP have failed to make the changes that will make a difference to people's lives."
Meanwhile Scottish Liberal Democrat leader Willie Rennie said the SNP must "understand why people are frustrated with their lack of honesty" over taxation.
He argued: "We've got an SNP Government that will increase the very tax that they said they would not at election time. So the question is about their integrity more than anything else, can they be frank with the voters about what they are proposing."
But the Greens - who have already struck a deal with the Scottish Government to support their budget - hailed the changes.
Green MSP Patrick Harvie said: "What today's rate resolution achieves - and I'm very pleased the Greens have played a pivotal role in bringing us to this point - is a huge step, a bold reform, towards progressive use of income tax powers and reducing inequality and funding our public services."