IMF pushes for pension tax ahead of budget negotiations

ISLAMABAD: With just days to go before the arrival of the International Monetary Fund (IMF) delegation, the Pakistani government is actively reviewing key budget proposals, including a major new measure to tax high-income pensioners.

According to official sources, the IMF has recommended that income tax be imposed on those receiving large monthly pensions as part of efforts to broaden the tax base and enhance fiscal discipline. In response, the federal government is preparing to introduce a 2.5 percent income tax on monthly pensions of Rs 400,000 or more in the upcoming budget 2025-26.

The proposed tax is expected to target high-income retirees, including former government employees, military officers and judges, including members of the judiciary.

At the same time, the government is working on income tax relief measures for small employees and middle-salaried groups. A key proposal under consideration is to increase the minimum annual income tax exemption limit, currently set at Rs600,000, to an unspecified upper limit.

IMF team will arrive in Pakistan on May 14

The IMF team will visit Islamabad on May 14 to finalize Pakistan’s budget targets for the fiscal year 2025-26. The government is keen to strike a balance between meeting IMF conditions and providing relief to its citizens in a tough economic environment.

Sources in the Federal Board of Revenue (FBR) have confirmed that talks are underway to fine-tune the proposals ahead of the IMF delegation’s arrival.