Options being considered to generate another Rs30bn before budget passage

ISLAMABAD: Pakistan’s budget makers are exploring options for some adjustments, either to impose additional taxes of Rs30 billion or reduce expenditures proportionally at the time of approval of the budget from parliament.

Top official sources confirmed to The News on Thursday that Prime Minister Shehbaz Sharif has now instructed the FBR in the budget meeting that for the first slab of salaried income, the tax rate is to be reduced from 5 to 1 per cent as finalised by the IMF in its original plan.

This rate was changed in the federal cabinet meeting held on June 10, 2025, at the time of granting approval of the budget, when Secretary Finance Imdadullah Bosal informed the cabinet that the budgetary numbers were locked with the IMF, so a change in expenditure would require some additional revenues.

This issue had come to the surface when the salaries for public sector employees were increased from 6 to 10 per cent. It requires an additional cost of Rs29-30 billion. In this cabinet meeting, it was decided that the rate of the first slab for income tax earnings from Rs0.6 million to Rs1.2 million would be reduced from 5 to 2.5 per cent. It was estimated that this measure could fetch an additional Rs9.5 billion. Some other tax rates were also proposed to be hiked slightly to adjust the overall expenditure requirement.

Now again, the PM asked the FBR to reduce the rate for the first slab as per the original proposal and bring it down from 5 to 1 per cent.

There are two options available with the government to stick to the agreed fiscal framework with the IMF, either to take additional revenue measures or slash the expenditures from anywhere, including restricting the hike in salaries by the original plan of 6 per cent.

It was interesting that the FBR had tabled its work on salaried class slabs with the Senate Standing Committee on Finance on Wednesday, in which the proposed rate was shown a reduction from 5 to 2.5 per cent for the first taxable slab.

The IMF seems quite tough on the budgetary numbers and, on the other hand, the finalisation of the budget is nearing, with the expectation that the approval of the budget for 2025-26 will be secured from the National Assembly by the end of next week. The Ministry of Finance and FBR high-ups are consistently engaged with the IMF, and there are some outstanding issues that are still on the table but not yet resolved between the two sides.

There are different priorities and choices within the PM Office, the Ministry of Finance, and FBR, which sometimes creates confusion. Deputy Prime Minister Ishaq Dar plays his role in evolving a consensus on such contentious issues and present it before the PM for getting its final resolution.