In a bid to provide relief to the salaried class and streamline taxation, the Pakistani federal government is contemplating significant changes to the tax structure for the fiscal year 2025-26. According to sources, the government is likely to raise the taxable annual income threshold from Rs600,000 to Rs800,000, pending approval from the International Monetary Fund (IMF). Additionally, a new proposal to impose taxes on pensioners drawing substantial amounts is also under consideration, marking a potential shift in the country’s fiscal policy.
Proposed Increase in Taxable Income Threshold
The Federal Board of Revenue (FBR) has outlined that the proposed relief measures will primarily target lower income slabs, with no recommendations currently being considered for high-income earners. One of the key proposals involves increasing the taxable annual income threshold from Rs600,000 to Rs800,000. This adjustment aims to ease the tax burden on salaried individuals earning modest incomes, particularly in light of rising inflation and living costs.
Sources indicate that three distinct proposals are under review to provide relief to the salaried class:
- Raising the taxable income threshold to Rs800,000, which could benefit a significant portion of low- to middle-income earners.
- Targeted relief for salaried individuals earning between Rs600,000 and Rs1.2 million annually, with specific measures still being finalized.
- Simplification of the income tax return form, aimed at making compliance easier for taxpayers.
However, these proposals are still in the preliminary stages, and a final decision will only be made after further consultations with stakeholders and the IMF.
Taxation on Pensioners
In a notable development, the government is also exploring the imposition of taxes on pensioners receiving substantial amounts. This proposal has sparked discussions, as it could affect a segment of the population previously exempt from such levies. The proposed tax rates for pensioners are structured as follows:
- 5% on annual pensions of Rs800,000.
- 10% on pensions ranging from Rs800,000 to Rs1.5 million.
- 12% on pensions between Rs1.5 million and Rs2 million.
- 15% on pensions from Rs2 million to Rs3 million.
- 20% on pensions exceeding Rs3 million.
These rates are part of a broader effort to expand the tax base and ensure a more equitable distribution of the tax burden. However, the proposal remains under review, with final decisions pending a detailed evaluation and consultation process.
Sales Tax Revisions and Simplified Tax Compliance
Alongside income tax reforms, the government is considering revisions to the sales tax rate to align with fiscal objectives. Additionally, efforts are underway to simplify the income tax return form, which could reduce the administrative burden on taxpayers and encourage greater compliance.
The proposed changes reflect the government’s commitment to balancing economic growth with fiscal responsibility, particularly in the context of Pakistan’s ongoing engagement with the IMF. The international lender’s approval will be critical to implementing these reforms, as Pakistan continues to navigate its economic challenges.
What’s Next?
While these proposals signal potential relief for salaried individuals and a recalibration of the tax system, they are not yet set in stone. The government has emphasized that all recommendations will undergo rigorous scrutiny and consultation before being finalized in the upcoming budget for 2025-26. The outcome of these discussions will have significant implications for taxpayers, particularly low- to middle-income earners and pensioners.
As Pakistan prepares for its next fiscal year, all eyes will be on the federal government and the IMF to see how these proposed changes unfold. Stay tuned for updates as the budget announcement approaches.
