ISLAMABAD: The International Monetary Fund (IMF) has reportedly given its “in-principle” approval for income tax relief to the salaried class in Pakistan’s upcoming federal budget for 2025–26. The proposed tax cuts aim to reduce the financial burden on salaried individuals by lowering income tax rates across several salary brackets. However, these relief measures are expected to increase the fiscal challenge of meeting the government’s ambitious revenue target for the fiscal year.
Proposed Tax Cuts and IMF Conditions
During recent discussions between Pakistan’s delegation and the IMF, several proposals were made to balance tax relief with revenue collection goals. One key suggestion is reducing the tax rate on the first income slab (Rs600,000 to Rs1.2 million annually) from the current 5% to as low as 1%. The government initially proposed a 1% rate, which would reduce the tax burden from Rs30,000 to Rs6,000 annually for many taxpayers. However, the IMF has recommended a slightly higher rate of 1.5%, which would result in an annual tax of Rs9,000 for this income bracket, to help reduce the tax collection gap.
Similar reductions are being considered for higher income slabs, including lowering the top tax rate from 35% to 32.5%. Additionally, the 10% income surcharge and the “super tax” are expected to be gradually reduced starting from this budget cycle.
Revenue Challenges and Economic Concerns
Despite these proposed tax relief measures, the government faces significant challenges in revenue collection. The Federal Board of Revenue (FBR) missed its revenue target by over Rs1 trillion in the first 11 months of the current fiscal year. Even with a revised lower target, it is unlikely to be met by the fiscal year-end on June 30, 2025.
Further concerns arise from the Commerce Ministry’s tariff rationalization plan, which could reduce customs revenue by Rs200 billion due to lower import tariffs. While the ministry argues this will stimulate economic activity, FBR officials warn it may encourage misdeclaration and tax evasion.
Separately, the IMF has expressed unease about the allocation of 2,000 MW of electricity for cryptocurrency mining without the prior approval of the Energy Ministry and the National Electric Power Regulatory Authority (NEPRA), highlighting governance issues.
Overall, while salaried individuals may receive some relief, Pakistan’s economic outlook and revenue generation remain areas of concern.
