Govt proposes up to 10% tax cut for salaried class

• Proposal is conditioned to approval from the IMF.
• Pakistan-IMF parlyes to run from May 14 to 22.
• FBR says proposals under discussion for salaried class.

ISLAMABAD: The government has shared some headlines of the proposed taxation measures with the IMF for the upcoming budget for 2025-26, including a reduction in the tax burden of salaried class up to 10% in different income slabs.

The proposed reduction in tax rates, if agreed by the IMF in different income slabs of the salaried class, might bring relief up to Rs50 billion for them in the next budget.

The IMF team and the Pakistani side will kick-start parleys on finalising the upcoming budget for 2025-26 this week from May 14 to 22. However, the venue of the meeting is yet to be finalised.

"To kick-start the economy, the government has shown its willingness to take additional taxation measures to match the revenue losses that will be incurred for providing the relief measures in the upcoming budget," top official sources confirmed while talking to The News on Sunday.

"The IMF team will discuss these proposed measures in the upcoming parleys," the source added.

The Pakistani team, the sources said, wants negotiations only to fill the gap that will occur on account of the provision of some relief.

For instance, in the case of the salaried class, the FBR has proposed a reduction in tax rates of Rs50 billion, so this gap will be filled with some other taxation measures.

In the first ten months (July-April) period, the salaried class paid out more than Rs450 billion in taxes, which is much higher than retailers and exporters. The salaried class had paid out Rs368 billion in the whole last fiscal year 2023-24.

On the eve of the last budget, it was communicated that the increased tax burden on the salaried class would cough up an additional Rs100 billion in the national kitty.

But in reality, the FBR has envisaged an additional Rs225 to Rs250 billion from the salaried class in the current fiscal year. It is estimated that the salaried class would pay a tax amount of Rs550 billion by the end of June 2025.

The payment of taxes for middle-income earners witnessed a phenomenal increase for monthly income earners in the range of Rs0.2 to Rs0.3 million. The income tax rates went up to 40 and 45%.

For higher income earners getting more than Rs1 million salary per month, there is a 10% surcharge over and above their 40% tax rates, which cannot be justified at all.

One higher-income bracket earner told The News that it seemed that they were getting higher salaries only for giving increased tax amounts. 

“Earning higher income is treated as a sin in our country,” he said and added that if these tax rates were not revised downward, there would be no other choice but to re-negotiate with our paymasters and convince them to give a certain portion of salary in cash.

When contacted, FBR’s official spokesman on Sunday replied that different proposals were still under internal discussion related to salaried classes.

Originally published in The News