Government Proposes Raising Income Tax Exemption to Rs800,000 and Taxing High Pensions

The federal government is weighing a significant increase in the annual income tax exemption limit from Rs600,000 to Rs800,000 for the 2025-26 budget, pending approval from the International Monetary Fund (IMF), according to insider reports. Federal Board of Revenue (FBR) sources revealed that relief proposals are being crafted to ease the tax burden on the salaried class, with a sharp focus on lower-income brackets.

A targeted relief package is also under consideration for salaried individuals earning between Rs600,000 and Rs1.2 million annually, aiming to provide financial breathing room for this group. However, higher-income earners are unlikely to see any substantial tax breaks, signaling a clear prioritization of middle and lower-income groups.

Beyond adjusting the taxable income threshold, the government is exploring ways to simplify income tax returns and potentially revise the sales tax rate, though details remain under wraps as discussions continue.

A bold new proposal targets high pensions, introducing progressive taxation for pensioners with annual pensions exceeding Rs800,000. The proposed rates include 5% for pensions around Rs800,000, 10% for Rs800,000 to Rs1.5 million, 12% for Rs1.5 million to Rs2 million, 15% for Rs2 million to Rs3 million, and 20% for pensions above Rs3 million.

Officials stress that these measures are preliminary, with final decisions hinging on further consultations and IMF approval. The proposals reflect a push to balance tax equity with economic relief for Pakistan’s workforce.