As Pakistan gears up for Budget 2025-26, the Federal Board of Revenue (FBR) is actively working on two major fiscal proposals — imposing 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 IMF mission’s visit on May 16.
According to sources, the FBR is considering a nominal tax on pensions drawn by retired individuals receiving substantial monthly amounts. The proposal targets pensioners earning Rs0.4 million or more per month, with possible tax rates ranging between 2.5% and 5%. The move aims to bring 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. Lower-income pensioners will remain unaffected.
This proposed pension tax aligns with recommendations from the International Monetary Fund (IMF), which has emphasized the need to broaden Pakistan’s tax base. The IMF may push for taxing pensions beginning from Rs100,000 per month, but FBR insiders note that the final decision will be political in nature and based on fiscal viability.
The FBR is also proposing to increase the income tax exemption threshold from Rs0.6 million to between Rs1 million and Rs1.2 million annually. This measure is intended to provide relief to the middle class and reduce the tax burden on salaried individuals, who currently contribute a significant portion of the overall revenue.
FBR officials stress that both proposals — the taxation of pension and the revised exemption limit — are part of a broader revenue strategy for the next fiscal year. These changes are designed not only to increase tax collection but also to respond to economic pressures and public demand for fairer taxation.
Meanwhile, the Senate Standing Committee on Finance is engaging with various industry stakeholders to gather input for the upcoming budget. Associations representing poultry, dairy, textile, and construction sectors have submitted their demands, including reduction in sales tax, withdrawal of advance taxes, and support for export-oriented industries.
The proposal to tax pension has been highlighted five times in recent policy discussions, reflecting its growing importance in budget considerations. As the IMF mission approaches, the FBR is preparing to defend its reform agenda, which could reshape Pakistan’s taxation landscape in the coming fiscal year.