IMF, Pakistan close to agreement on income tax relief for salaried class in upcoming budget

Pakistan and the International Monetary Fund (IMF) are close to reaching an agreement to provide tax relief to the salaried class in the federal budget for the fiscal year 2025-26, as part of ongoing negotiations aimed at striking a balance between revenue targets and public relief measures.

According to reports, extensive deliberations were held on Friday night between IMF officials and representatives of the Federal Board of Revenue (FBR). The IMF has given preliminary approval to a plan aimed at revising downwards the income tax rates for multiple salary brackets, which could provide relief estimated at between Rs56 billion and Rs60 billion in the next financial year.

As part of the proposed reforms, the FBR has suggested slashing the tax rate for the first income slab—comprising annual earnings ranging from Rs600,000 to Rs1.2 million—from the current 5 percent to 1 percent. This would result in a decrease in tax liability from Rs30,000 to Rs6,000 for incomes at the upper threshold of this bracket. However, the IMF has expressed preference for a compromise rate of 1.5 percent, which would entail a tax payment of Rs9,000 for the same income level.

Further proposals on the table include a uniform reduction of 2.5 percent across the higher income slabs and a cut in the maximum tax rate from 35 percent to 32.5 percent. However, final calculations and approval are still under review by both sides as discussions continue.

The IMF has also urged Pakistani authorities to begin the gradual rationalisation of the 10 percent income tax surcharge and the Super Tax, calling for a more equitable and efficient tax structure.

In a separate development during the talks, the IMF voiced concerns over the proposed allocation of 2,000 megawatts of electricity for cryptocurrency mining, citing the lack of requisite clearance from both the Ministry of Energy and the National Electric Power Regulatory Authority (NEPRA). The Fund criticized the decision as a "deviation" from standard regulatory practices.