In a significant development for Pakistan’s salaried individuals, the International Monetary Fund (IMF) and the Government of Pakistan are reportedly close to finalizing an agreement that would see a reduction in income tax rates for the salaried class in the upcoming fiscal year 2025-26 budget.
During intense negotiations between the IMF mission and the Federal Board of Revenue (FBR) on Friday night, the Fund is understood to have granted broad approval for lowering tax rates across several income slabs for salaried individuals. This proposed reduction is estimated to provide relief worth approximately Rs. 56-60 billion in the next fiscal year, as reported by TheNews.
Details of the proposed changes indicate a focus on the lower and middle-income brackets. The FBR had proposed reducing the tax rate on the first income slab (annual earnings ranging from Rs. 0.6 million to Rs. 1.2 million) from the current 5 percent down to 1 percent. Under this FBR proposal, the tax payable on income up to Rs. 1,000,000 would significantly drop from Rs. 30,000 to Rs. 6,000. However, the IMF is reportedly favoring a compromised rate of 1.5 percent for this slab, which would result in a tax payable of Rs. 9,000.
For higher income slabs, discussions are underway for a proposed 2.5 percent reduction per slab. Furthermore, a cut in the top tax rate for the highest earners, from the current 35 percent to 32.5 percent, is also under active consideration. Final calculations and precise adjustments to these rates are still pending between the IMF and FBR.
The IMF also pressed for the gradual rationalization of the existing 10 percent surcharge and the Super Tax, indicating a broader focus on tax simplification and equity.
In an unrelated but notable point, the international lender reportedly criticized Pakistan for allocating 2,000MW of electricity for cryptocurrency mining activities without obtaining prior approval from the Energy Ministry and the National Electric Power Regulatory Authority (NEPRA). This highlights the IMF’s scrutiny extending beyond fiscal matters to energy sector governance.
The reported agreement on tax relief for the salaried class comes as a significant concession within the ongoing IMF program, reflecting potentially successful advocacy by Pakistani authorities for measures to ease the burden on fixed-income groups. The specific details of these tax adjustments will be eagerly awaited in the forthcoming budget announcement.
