FBR mulls taxing pensions ahead of IMF mission visit

ISLAMABAD: Just ahead of the upcoming visit of the IMF mission, the Federal Board of Revenue (FBR) has proposed a proposal to tax the pensioners in the Budget 2025-26.

For the salaried class, the Board is considering jacking up the exemption of taxable ceiling from Rs0.6 million to Rs1 to 1.2 million on per annum basis.

The IMF mission is expected to visit Pakistan on May 16 to discuss the coming budget, including tax and non-tax revenue targets as well as expenditure for keeping the fiscal deficit and primary surplus within the envisaged targets.

Talking to this correspondent about taxing the pensioners, an FBR official said different proposals were under consideration, which would be tabled before the IMF mission. One of the proposals is to tax the pensioners drawing Rs0.2 million to Rs0.4 million per month. Another proposal is to tax the pensioners getting more than Rs0.1 million but that might not get through all stages.

The IMF may insist taxing the pensioners getting Rs100,000 per month with a rate of 2 to 5 percent to bring equity in the taxation system.

“Another proposal under consideration is to jack up the exemption limit of taxable ceiling from Rs0.6 million per annum to Rs1 or Rs1.2 million per annum,” said the official, adding that the FBR was getting maximum revenue from the middle-income earners. Hence, the proposal for cut down rates in the range of 5 to 10 percent. There is a 10 percent surcharge on higher highest salary slabs of Rs10 million per month, so this surcharge might be waived off. The super tax might also be rationalised in the next budget.

Meanwhile, the Senate Standing Committee on Finance and Revenue has invited representatives from different trade associations to discuss proposals for the upcoming budget. The committee met here under the chairmanship of Senator Saleem Mandviwalla.

The poultry association representatives said tax per chick was too high for the industry. They demanded the removal of sales tax on chicken, noting that while other meats were exempt, chicken was taxed when sold under branded packaging. They were of the view that the government was forcing them to abandon branding and value addition. They requested a reduction in sales tax on dairy products, especially packaged milk, from 18% to 5%. They emphasised that milk was typically not taxed worldwide and urged the government to align with the international best practices. In response, the FBR chairman sought concrete proposals to offset the revenue shortfall that would result from such a tax cut.

Similarly, the Fruit Juices Council representative Atika Mir advocated a reduction in Federal Excise Duty (FED) from 20% to 15%, citing a 40% decline in sales over the past two years due to the current tax structure.

Moreover, Chairman All Pakistan Textile Mills Association (Aptma) Kamran Arshad warned that textile exports had remained stagnant for two years.

He criticised the EFS scheme for pushing the industry toward collapse, highlighting issues such as the imposition of 18pc sales tax on local cotton and the duty-free import of foreign cotton. He recommended placing yarn and fabric on the negative list, fixing electricity rates at 9 cents per unit, and reducing the advance tax rate from 2.5pc to 1pc.

The association reported that 120 spinning mills and 800 ginning factories had already shut down, and that the textile exports had remained stagnant at 16.5% and 16.7% over the past two years. Additionally, the Pakistan Builders and Developers Association (ABAD) proposed the elimination of advance income tax on property purchases and investments. They also called for the reinstatement of a simplified tax collection system based on the covered area and requested the repeal of Section 7E, stating that plots were a basic need of ordinary citizens.

However, the Constructors Association of Pakistan sought a reduction in the withholding tax rate from 8% to 1.5% or 2%, contending that the current rate creates serious constraints for the sector’s stability. They further demanded the removal of the term “withholding agent” for contractors, arguing that construction is a mobile industry requiring frequent cash payments to small vendors and labourers across various regions, making it impractical to fulfil the obligations of withholding agents.

The Steel Melters Association raised concerns over tax evasion in the steel sector, which they estimated at Rs70–80 billion annually. They highlighted rampant smuggling and circulation of 3–4 million tons of unregistered steel scrap in Karachi, including imports from Iran.

Exempting taxable ceiling from Rs0.6m to Rs1 to 1.2m per annum basis under consideration; poultry association seeks removal of sales tax; Fruit Juices Council seeks 20-15pc cut in FED; APTMA calls for placing yarn, fabric on negative list, fixing electricity rates at 9 cents per unit, reducing advance tax rate from 2.5-1pc; finance ministry mentions areas needing amendments to address urgent legal, administrative, enforcement gaps; Tax Laws (Amend) Ord. addresses important loopholes in tax system;

In a related development, Global rating agency Moody’s said that escalating tensions between India and Pakistan would weigh on Pakistan’s economic growth. The rating agency stated: “Sustained escalation in tensions with India would likely weigh on Pakistan’s growth and hamper the government’s ongoing fiscal consolidation, setting back Pakistan’s progress in achieving macroeconomic stability.”

On Pakistan’s economic trajectory, it said that its macroeconomic indicators had been improving, with growth gradually rising, inflationary pressure easing and foreign exchange reserves increasing amid “continued progress” in the International Monetary Fund (IMF) programme.

However, the agency noted that “a persistent increase in tensions could also impair Pakistan’s access to external financing and pressure its foreign exchange reserves, which remain well below what is required to meet its external debt payment needs for the next few years”.Notably, the agency warned that India’s suspension of the 1960 Indus Waters Treaty could “severely reduce Pakistan’s water supply”.

In comparison, Moody’s said that the macroeconomic conditions in India would remain stable, propelled by “moderating but still high levels of growth amid strong public investment and healthy private consumption”.

“In a scenario of sustained escalation in localised tensions, we do not expect major disruptions to India’s economic activity because it has minimal economic relations with Pakistan,” it said, adding that the country accounted for less than 0.5 per cent of India’s total exports in 2024. However, it did stress that higher defence spending could impact India’s “fiscal strength and slow its fiscal consolidation”.

“Our geopolitical risk assessment for Pakistan and India accounts for persistent tensions, which have, at times, led to limited military responses,” it said. It predicted that flare-ups “will occur periodically” as they have throughout the neighbouring countries’ post-independence history. However, they will not lead to an “outright, broad-based military conflict”, it added.