The International Monetary Fund (IMF) has reportedly agreed to provide income tax relief to the salaried class in the 2025-26 federal budget, it is learnt.
The global lender has given “in-principle” approval to slash income tax rates across various salary brackets. The proposed relief is expected to cost the government between Rs56 billion and Rs60 billion. The IMF suggested Islamabad to take steps to cover this shortfall.
The shortfall caused by tax relief, however, will make the ambitious revenue target of Rs14.2 trillion during the fiscal year more challenging because the FBR (Federal Board of Revenue) failed to achieve targets during previous year.
Pakistan and the IMF delegations discussed the upcoming budget on Friday during which alternate taxation proposals have been made to satisfy the IMF while giving relief to the salaried individuals. One key proposal includes reducing the tax rate for the first income slab (Rs600,000 to Rs1.2 million annually) from 5% to 1%, lowering the tax burden from Rs30,000 to Rs6,000.
However, the IMF has proposed a 1.5% tax rate on the slab, which would result raise the tax Rs9,000, reducing the tax collection gap. Similarly, a 2.5% reduction is being considered across each slab, with the top tax rate cut from 35% to 32.5%.
It is also learnt that the 10% income surcharge and the “super tax” are likely to be gradually reduced, starting with the upcoming budget.
Despite these relief measures, the IMF and Pakistani authorities remain concerned about the overall revenue collection. The tariff rationalisation plan, proposed by the Commerce Ministry, if implemented, could result in a Rs200 billion loss in customs revenues. The ministry argued that lower tariffs will stimulate economic activity and boost revenue.
FBR officials have also raised red flags, warning that reducing import tariffs could encourage misdeclaration of goods, undermining customs enforcement and revenue collection.
Meanwhile, the IMF expressed apprehensions about meeting revenue generation target as in the first 11 months of the current fiscal year, the FBR has missed its target by over Rs1 trillion. Even revising the target downward, from Rs12.97 trillion to Rs12.33 trillion, it is unlikely that it will be achieved by June 30, 2025.
Moreover, the IMF has also raised concerns about a separate policy issue: the allocation of 2,000MW of electricity for cryptocurrency mining without prior approval from the Energy Ministry and NEPRA.