IMF asks Pakistan to tax pensioners as mission lands in Islamabad for monetary talks

ISLAMABAD: The International Monetary Fund (IMF) urged the Pakistan government to tax civilian and military pensioners and withdraw income tax exemptions from various pension schemes.

The demands came as the global lender’s technical experts landed in Islamabad on Thursday to begin negotiations for two bailout packages and budget preparations. The team will engage with Pakistani authorities starting today (Friday), with the remaining members, including Mission Chief Nathan Porter, expected to arrive next week, sources said.

According to the local publication, if the government accepts the IMF’s demand to tax retiring and retired individuals, it will receive additional income tax ranging from Rs22 billion to Rs25 billion per annum after withdrawing all tax exemptions, including those on various pension funds.

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The IMF has asked Pakistan to recover additional taxes equal to 0.5% of the Gross Domestic Product (GDP) or around Rs600 billion from salaried and business individuals.

The sources revealed that the IMF has recommended that Pakistan eliminate income tax exemptions enjoyed by pensioners and tax their pensions and gratuity starting from the new fiscal year, commencing in July. Additionally, the IMF proposes ending income tax credits for voluntary payments to workers’ participation funds.

These measures may adversely affect Pakistan’s already marginalized fixed-income population, which has been grappling with double-digit inflation for an extended period. 

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The tax credit for contributions to approved Pension Funds might also be withdrawn, generating approximately Rs2 billion in annual revenues. Additionally, any pension received by a Pakistani citizen from a former employer is proposed to be taxed, generating another Rs2 billion.

Similarly, any income from a Pension Fund approved by the Securities and Exchange Commission of Pakistan (SECP) is proposed to be taxed. If accepted, the pension funds of Punjab, Sindh, and Khyber-Pakhtunkhwa may also be subject to income tax, potentially yielding Rs6 billion to Rs8 billion per annum.