The upcoming federal budget for the fiscal year 2025-26 could usher in a tide of relief for salaried workers of Pakistan since the government is contemplating an increase in the tax-free annual exemption threshold from Rs. 600,000 to Rs. 800,000.

The objective is to mitigate the inflationary burden on those already struggling with inflation.

These proposals, however, are still in the discussion phase, and their implementation will depend on the approval of the International Monetary Fund. According to the Federal Board of Revenue, the tax reform plan focuses solely on modifying the lower income slabs, with no relief expected for individuals earning higher salaries.

Officials reveal that three separate proposals are being discussed. One key idea is to increase the taxable income threshold for those earning more than Rs. 50,000 per month. Furthermore, individuals falling within the Rs. 600,000 to Rs. 1.2 million annual income range may also benefit from the anticipated adjustments.

To make tax compliance easier, the government is also working on simplifying the income tax return forms so that the process becomes more accessible to the general taxpayer.

Meanwhile, discussions are underway to introduce a structured taxation system for pensioners. Under the initial proposals, pension incomes might be taxed based on a tiered structure, with rates ranging from 5% to as high as 20% depending on the annual amount received. This could particularly affect those receiving higher pensions.

While these suggestions are not yet finalised, they signal the government's intent to provide meaningful relief to the working class while expanding the tax net in a fair and transparent manner.