In a major development for Pakistan’s salaried individuals, the International Monetary Fund (IMF) has given a nod to proposed tax relief for salaried class in the upcoming 2025–26 federal budget.
While the move is set to provide some long-awaited financial breathing room, the government now faces the uphill task of bridging a massive revenue gap.
According to reports, following high-stakes negotiations late Friday, IMF officials granted in-principle approval for a reduction in income tax rates across multiple salary brackets. The proposed changes could offer relief worth Rs56 to Rs60 billion in the next fiscal year.
The Federal Board of Revenue (FBR), however, must introduce compensatory income tax measures to make up for the shortfall caused by these concessions. A senior member of the government’s negotiating team confirmed the development, stating, “We have proposed certain taxation measures to satisfy the IMF for providing relief to the salaried class in the coming budget.”
Currently, individuals earning between Rs0.6 million and Rs1.2 million annually pay a 5% income tax, totaling Rs30,000. Under the proposed plan, this rate could drop to just 1%, reducing the tax burden to Rs6,000—a significant relief. However, the IMF is pushing for a 1.5% rate, which would translate to a Rs9,000 tax for the same slab.
For higher earners, each income slab could see a 2.5% reduction in tax rates, with the maximum tax rate dropping from 35% to 32.5%. While this may appear like good news for middle and upper-income groups, officials admit that the full impact of these cuts is still being evaluated.
The tax relief couldn’t come at a more critical time. Pakistan is aiming for an ambitious tax revenue target of Rs14.2 trillion for FY2025–26—despite struggling to meet the revised Rs12.33 trillion target for the current year. In the first 11 months of FY2024–25, the shortfall already exceeds Rs1 trillion.
Experts warn that if the upcoming revenue target is based on the unrevised figure of Rs12.33 trillion, it could set the stage for unrealistic revenue projections, complicating efforts to stabilize the economy.
Further complicating matters, the government is also considering a tariff rationalisation plan, which could cost up to Rs200 billion in lost customs revenue. Although some argue that lower import duties will boost sluggish economic activity and help recover around Rs50 billion, FBR officials are skeptical. They fear increased chances of misdeclaration of imports, which would allow higher-tariff goods to be cleared under lower rates, further denting collections.
Adding to the friction, the IMF has raised objections over the allocation of 2,000MW of electricity for cryptocurrency mining—reportedly done without prior approval from the Energy Ministry or the National Electric Power Regulatory Authority (Nepra).
With fiscal pressure mounting and the IMF closely monitoring every move, the government’s commitment to tax relief for salaried class must be balanced carefully against revenue needs. As budget 2025–26 takes shape, all eyes are now on Islamabad’s ability to deliver meaningful relief without derailing its fragile economic recovery.
