ISLAMABAD: Pakistan and the International Monetary Fund (IMF) are moving towards a growing consensus on reducing income tax rates for the salaried class in the upcoming federal budget for the fiscal year 2025–26, which is scheduled to be presented on June 10.
However, budget makers are facing a significant challenge in achieving the ambitious revenue target of Rs14.2 trillion, especially considering the already downward-revised target of Rs12.33 trillion for the current fiscal year and growing shortfalls in tax collection.
According to media reports, intense discussions took place between the IMF and the Federal Board of Revenue (FBR) on Friday night. During these talks, the IMF staff agreed in principle to allow some room for reducing tax rates across various slabs for the salaried segment.
According to IMF estimates, the proposed tax relief may result in a revenue loss of Rs56 to Rs60 billion in the next fiscal year. As a result, the FBR will be required to introduce compensatory tax measures within the income tax regime to offset the revenue gap.
A senior member of the Pakistani negotiation team told media that the government had proposed certain tax measures to satisfy the IMF while providing relief to the salaried class in the upcoming budget.
While the final structure of revised tax slabs is still under discussion, FBR has proposed imposing only 1% tax on the first slab, those earning between Rs600,000 and Rs1.2 million annually, down from the current 5%.
However, the IMF is pushing for a minimum rate of 1.5% for this first slab, which would result in an annual tax liability of Rs9,000 for individuals in that income bracket.
For the remaining slabs, the FBR has proposed a 2.5% reduction in tax rates across the board, and also suggested lowering the highest tax slab rate from 35% to 32.5%.
Despite this progress, there is still no finalized consensus between the IMF and top FBR officials regarding the exact revenue impact of these changes or the final slab structure.
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