IMF, Pakistan Near Consensus on Tax Relief for Salaried Class Amid Budget Pressures

Islamabad – June 1, 2025 — Pakistan and the International Monetary Fund (IMF) are reportedly moving toward a consensus on reducing tax rates for the salaried class in the upcoming federal budget for the fiscal year 2025-26. The development comes amid growing fiscal challenges, as Islamabad prepares to meet an ambitious revenue target of Rs14.2 trillion.

Sources close to the negotiations revealed that intensive discussions were held late Friday night between IMF staff and officials from the Federal Board of Revenue (FBR). During the talks, the IMF gave in-principle approval for lowering income tax rates across several slabs for salaried individuals. However, balancing this relief with the government's revenue requirements remains a complex task.

According to estimates provided by the IMF, the proposed tax relief will result in a revenue loss of Rs56 to Rs60 billion in the next fiscal year. To compensate for this shortfall, the FBR is expected to introduce alternative tax measures within the income tax regime.

A senior member of Pakistan’s negotiating team confirmed to The News on Saturday that several proposals have been shared with the IMF to secure relief for the salaried class, with the final budget scheduled for presentation on June 10. “We are working on striking a balance between tax relief and fiscal responsibility,” the official stated.

Under the proposed structure, the first income slab—covering annual earnings between Rs600,000 and Rs1.2 million—would be taxed at just 1%, a significant reduction from the current 5% rate. However, the IMF is advocating for a slightly higher 1.5% rate, which would result in a tax of Rs9,000 annually for individuals in this bracket.

For higher income brackets, a 2.5% reduction in each slab is being considered, with the highest tax rate dropping from 35% to 32.5%. Despite these proposals, officials cautioned that final figures are still under review, and full agreement between the IMF and FBR leadership has yet to be reached.

Meanwhile, concerns persist over the government’s ability to meet the Rs14.2 trillion revenue target amid mounting tax collection shortfalls. The current year’s target of Rs12.33 trillion is already proving difficult to achieve due to economic instability and structural inefficiencies.

The ongoing IMF-Pakistan budget talks are expected to continue in the lead-up to the budget announcement, as both sides seek to finalize a package that balances public relief with fiscal sustainability.