• Rs56–60 billion relief expected in fiscal year 2025–26.
• New tax slabs include 1% on the lowest income tier.
• FBR faces uphill task to hit Rs14.2 trillion revenue mark.

ISLAMABAD: Pakistan and the International Monetary Fund (IMF) are edging closer to an agreement on proposed tax relief for the salaried class in the upcoming 2025–26 federal budget, The News reported on Sunday. 

However, meeting the ambitious revenue target of Rs14.2 trillion will pose a significant challenge, particularly in light of the widening shortfall against the revised tax collection goal of Rs12.33 trillion for the current fiscal year.

Following intensive negotiations on Friday night, IMF officials granted in-principle approval for a reduction in income tax rates across various salary slabs. 

The Washington-based lender estimates that the proposed cuts would offer relief amounting to Rs56-60 billion in the next fiscal year. To offset the resulting revenue gap, the Federal Board of Revenue (FBR) will be required to introduce compensatory income tax measures.

“We have proposed certain taxation measures to satisfy the IMF for providing relief to the salaried class in the coming budget,” a top official of the negotiating team confirmed to The News on Saturday.

The official said the reduction in the proposed slabs of the salaried class had not yet been worked out fully. The FBR proposed just 1% tax on the first slab, ranging from Rs0.6 million to Rs1.2 million earners per year, compared to the existing rate of 5%.

The existing tax rate of 5% for the first slab turns into Rs30,000 tax, and if the proposed rate of 1% is agreed, the tax paid amount will be reduced from Rs30,000 to Rs6,000 for earnings up to Rs100,000.

The IMF is insisting on collecting a 1.5% tax rate from the first slab, so if a 1.5% tax is imposed, then they will have to pay Rs9,000 tax.

For the remaining slabs, there is a proposed reduction of 2.5% in each income slab of the salaried class, and the maximum slab rate will be reduced from 35 to 32.5%. However, the exact calculation of the whole cost has not yet been ascertained and reconciled between the IMF and FBR high-ups.

When asked about the fate of the surcharge of 10% and the imposition of Super Tax, the sources said surcharge and Super Tax would also be rationalised gradually, and a reduction in tax rates will kick-start from the next budget.

Top official sources confirmed the budget makers were worried about the proposed tariff rationalisation plan on imports because if the plan envisaged by the Commerce Ministry and National Tariff Commission was implemented, it would cost revenues to the tune of Rs200 billion.

It has been argued that tariff reduction will kick-start sluggish economic activities, boosting revenue collection. If this argument is accepted, the revenue loss will stand at Rs150 billion in the coming budget.

The FBR high-ups were also perturbed by the tariff rationalisation plan. They argued when tariffs on plenty of imported items were going to be reduced, how Customs officials would curb misdeclarations. There are growing apprehensions that the higher tariff goods might be declared and cleared in lower tariff categories.

There is another apprehension that the FBR target was going to be fixed on wrong assumptions, as in the first 11 months, the shortfall in revenues widened to more than Rs1 trillion in comparison to the original target of Rs12,970 billion for the current fiscal year. Although the target was revised downward to Rs12,332 billion with the consent of the IMF, achieving this target seems impossible by June 30, 2025.

In such circumstances, if the next year’s target of Rs14.2 billion was envisaged on the basis of a wrong assumption of Rs12,332 billion for the outgoing fiscal year, the next FBR target will be based on unrealistic numbers.

The IMF also raised objections over the allocation of 2,000MW of electricity for the mining of cryptocurrency without seeking prior approval from the Energy Ministry and its Regulator, Nepra.