FBR suggests pension tax ahead of key IMF budget talks

• IMF may insist on taxing pensioners getting Rs0.1m/month.
• Global lender team is likely to visit Pakistan on May 16.
• Poultry association says tax per chick too high for industry.

ISLAMABAD: The Federal Board of Revenue (FBR) has suggested taxing pensioners in the upcoming budget 2025–2026, just ahead of the International Monetary Fund (IMF) mission's scheduled visit to the country, The News reported on Tuesday.

The revenue board is mulling over raising the taxable ceiling exemption for the salaried class from Rs0.6 million to Rs1 to 1.2 million annually.

On May 16, the IMF team is likely to travel to Pakistan to talk about the upcoming budget. Among other things, the discussion will include targets for both tax and non-tax revenue as well as expenditures to maintain the primary surplus and fiscal deficit within the predetermined ranges.

Regarding taxing the pensioners, an FBR official told the scribe that many ideas were being considered and will be presented to the IMF mission. Taxing retirees who receive between Rs0.2 million and Rs0.4 million pension a month is one of the proposals. Taxing pensioners who draw more than Rs0.1 million is also one of the proposals, however, it might not be implemented.

To promote justice in the tax system, the IMF may insist on taxing retirees who receive Rs100,000 per month at a rate of 2 to 5%.

“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 largest share of revenue was being received by the FBR from middle-class persons. Therefore, reducing rates between 5% and 10% has been suggested. Higher salary slabs of Rs10 million per month are subject to a 10% surcharge, which may be waived. The upcoming budget may also rationalise the super tax.

Representatives from various trade associations have been asked by the Senate Standing Committee on Finance and Revenue to discuss proposals for the next budget. A meeting of the Senate standing body was presided by Senator Saleem Mandviwalla here.

The poultry association representatives said the 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 said 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, All Pakistan Textile Mills Association (Aptma) Chairman 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 18% 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 2.5% to 1%.

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% 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.