As Pakistan prepares its federal budget for fiscal year 2025-26, the Federal Board of Revenue (FBR) is reportedly working on two significant fiscal proposals: introducing a tax on high-value pensions and increasing the income tax exemption threshold for salaried individuals. These measures are expected to be submitted to the prime minister for approval ahead of the upcoming International Monetary Fund (IMF) mission’s visit scheduled for May 16.
Targeting High-Value Pensions
According to sources familiar with the proposals, the FBR is considering imposing a nominal tax on pensions drawn by retired individuals receiving substantial monthly amounts. The proposal specifically targets pensioners earning Rs 0.4 million or more per month, with potential tax rates ranging between 2.5% and 5%. The move aims to introduce equity into the tax net by focusing only on affluent pensioners, such as retired Grade-22 officers, ex-judges, senior bureaucrats, and armed forces personnel receiving high pensions. Lower-income pensioners will remain unaffected by this proposed measure.
Aligned with IMF Recommendations
This proposed tax on high-value pensions aligns with recommendations from the International Monetary Fund (IMF), which has consistently emphasized the need to broaden Pakistan’s tax base. While the IMF may advocate for taxing pensions starting from a lower threshold, possibly Rs 100,000 per month, FBR insiders reportedly note that the final decision on the specific limit will be political in nature and based on a thorough assessment of fiscal viability. The proposal to tax pensions has been highlighted five times in recent policy discussions, underscoring its growing importance in budget considerations.
Relief Proposed for Salaried Class
Simultaneously, the FBR is also proposing to increase the income tax exemption threshold for salaried individuals. The current annual exemption limit stands at Rs 0.6 million. The proposed change would raise this threshold to somewhere between Rs 1 million and Rs 1.2 million annually. This measure is intended to provide much-needed relief to the middle class and reduce the tax burden on salaried individuals, who currently contribute a significant portion of the overall income tax revenue.
Part of Broader Revenue Strategy
FBR officials emphasize that both proposals — the taxation of high-value pensions and the revised income tax exemption limit for the salaried class — are integral components of a broader revenue strategy being formulated for the next fiscal year. These proposed changes are designed not only to potentially increase tax collection from currently untaxed high incomes but also to respond to prevailing economic pressures and public demand for fairer taxation.
Stakeholder Consultations Underway
Meanwhile, in parallel budget preparation efforts, the Senate Standing Committee on Finance is actively engaging with various industry stakeholders across the country to gather input for the upcoming budget. Associations representing sectors such as poultry, dairy, textile, and construction have reportedly submitted their specific demands, including requests for reduction in sales tax, withdrawal of advance taxes, and enhanced support measures for export-oriented industries.
As the IMF mission approaches, the FBR is preparing to present and defend its reform agenda, which, if approved, could reshape Pakistan’s taxation landscape in the coming fiscal year.
