Pakistan Considers Pension Tax in 2024-25 Budget

Pakistan Considers Pension Tax in 2024-25 Budget

Karachi ( – In a strategic move to bolster its revenue, Pakistan is poised to introduce a pension tax in the upcoming 2024-25 budget.

This proposed measure aims to generate substantial additional income for the government.

Analysts at Arif Habib Limited have indicated that the government may impose a tax on pensions, specifically targeting those exceeding Rs 1.2 million annually. Alongside this, the government plans to withdraw existing income tax exemptions for various pension funds and schemes. These combined measures are projected to yield an additional Rs 25 billion in tax revenue each year.

The decision to tax pensions, particularly those of government employees, marks a significant shift in the country’s fiscal policy. Currently, pensions and pension funds enjoy substantial tax exemptions, providing significant relief to retirees. However, in light of the growing fiscal deficit and the need for enhanced revenue streams, the government is considering revising these exemptions.

For pensions exceeding Rs 1.2 million per annum, the proposed tax would affect a considerable number of retirees, particularly those from the public sector. This threshold indicates that the tax will primarily impact higher-income pensioners, aligning with the government’s strategy to target wealthier segments of the population for revenue generation.

Moreover, the revocation of income tax exemptions for various pension schemes and funds will widen the tax net, ensuring that a broader range of pension income is subjected to taxation. This move is expected to contribute significantly to the government’s revenue without disproportionately impacting lower-income pensioners.

Economic analysts believe that while the introduction of a pension tax may face resistance from affected retirees and stakeholders, it is a necessary step towards fiscal consolidation. The additional Rs 25 billion in tax revenue will provide the government with much-needed funds to address budgetary shortfalls and invest in essential public services.

However, the proposed measures also raise concerns about the financial security of retirees who rely on their pensions as a primary source of income. Critics argue that the government should balance the need for revenue with the potential financial strain on pensioners.

As the budget announcement approaches, stakeholders and analysts will closely monitor the government’s final decision on pension taxation. The proposed measures, if implemented, will mark a pivotal change in Pakistan’s fiscal policy, reflecting the government’s commitment to broadening the tax base and enhancing revenue collection.