Prime Minister Shehbaz Sharif has approved the preparation of proposals aimed at reducing the tax burden on individuals and businesses, including the abolition of the super tax and a reduction in income tax rates for salaried persons. The proposals will be presented to the International Monetary Fund for approval as part of ongoing fiscal discussions between Pakistan and the global lender.
The decision was taken during a meeting chaired by the prime minister on Saturday, where officials discussed possible tax relief measures that could provide some respite to segments of society facing high taxation levels. According to sources familiar with the discussions, the proposals are expected to be formally shared with the IMF next week after further refinement by the tax authorities in consultation with private sector experts.
One of the key proposals under consideration involves abolishing the super tax currently imposed on wealthy individuals and the corporate sector. The government plans to present the proposal to the IMF for endorsement before any final policy announcement is made. The move is being considered as part of broader efforts to simplify the tax structure and address concerns raised by businesses regarding the additional levy.
Another proposal being considered is a reduction in the maximum income tax rate applied to the highest salaried income group. According to sources, the government is evaluating a plan to lower the current top tax rate by five percentage points to 30 percent. In addition, authorities are considering increasing the income slab threshold at which the new maximum rate would apply.
While the previous federal budget included a nominal reduction in tax rates for lower-income earners, officials acknowledged that the changes did not significantly reduce the overall tax burden faced by salaried individuals. The new proposals aim to address these concerns and provide more meaningful relief to taxpayers. Government officials had initially hoped to introduce tax reductions in the range of Rs1.5 trillion to Rs1.8 trillion. However, it is widely believed that the IMF may not allow such a large fiscal adjustment, particularly at a time when the Federal Board of Revenue is struggling to meet its revenue targets.
Economists have also raised concerns regarding the structure of Pakistan’s tax system. A recent research paper by economist Sajid Amin highlighted that the rising share of direct taxes in recent years largely reflects increased tax collection from salaried individuals rather than a broad expansion of the tax base. According to the analysis, sectors with significant economic influence, including retail and real estate, remain largely outside the effective tax net or contribute comparatively lower taxes. The study suggests that the apparent increase in the share of direct taxes may create a misleading perception about improvements in tax equity, as a significant portion of the burden continues to fall on salaried employees and formal sector businesses.
In addition to the proposed super tax abolition and income tax reduction, the government is also examining several other tax policy adjustments. One proposal under consideration involves reducing the 1 percent deemed income tax applied to the property sector. This tax has already been challenged in various courts and has faced criticism from stakeholders within the real estate industry. Another potential reform includes abolishing the 1 percent advance income tax currently imposed on exporters. However, this measure will also depend on approval from the IMF due to its possible impact on overall revenue collection.
Authorities are also reviewing the possibility of eliminating the capital value tax on foreign assets. Officials believe the measure could help simplify the tax system while addressing concerns raised by overseas Pakistanis and investors holding foreign assets.
Earlier discussions within the government also included proposals to reduce the general sales tax rate to 15 percent and lower the corporate income tax rate to 25 percent. However, sources indicate that these proposals may be postponed for future consideration due to fiscal constraints and ongoing negotiations with the IMF. Recent tax collection data highlights the increasing contribution of salaried individuals to government revenue. According to provisional figures compiled by the Federal Board of Revenue, salaried employees paid approximately Rs315 billion in income tax during the July to January period of the current fiscal year. This amount represents an increase of Rs30 billion, or about 10.5 percent, compared to Rs285 billion collected during the same period in the previous fiscal year. The figures illustrate the growing share of tax revenue generated from salaried individuals in both the public and private sectors.
During the same period, tax contributions from the salaried class were reported to be more than double the taxes collected from the real estate sector, highlighting structural imbalances within the country’s tax system. Analysts argue that Pakistan’s salaried class continues to face disproportionate taxation, largely due to the government’s reliance on a limited pool of documented taxpayers. Current estimates suggest that salaried individuals pay approximately 38 percent of their gross income in taxes, a level considered significantly higher than many comparable regional economies.
Meanwhile, negotiations between Pakistan and the IMF remain ongoing, with reports indicating that the international lender has expressed dissatisfaction over the Federal Board of Revenue’s performance in achieving revenue targets. During the IMF’s previous review mission, the tax collection target for the fiscal year was reduced by Rs216 billion, bringing the revised target down to Rs13.9 trillion. However, following weaker-than-expected revenue performance during the first seven months of the fiscal year, the FBR has sought an additional reduction of Rs430 billion. The tax authority is now proposing a revised target of Rs13.5 trillion, although internal assessments suggest that actual collections may not exceed Rs13.2 trillion by the end of the fiscal year.
Multiple meetings between Pakistani officials and IMF representatives were held this week to discuss potential measures for addressing the emerging fiscal gap, which could affect the government’s ability to achieve its targeted primary budget surplus. The finance ministry is also exploring alternative revenue sources to offset the shortfall. Officials expect that the petroleum development levy could generate an additional Rs150 billion to Rs200 billion in revenue, particularly as fuel levy rates have recently increased beyond Rs80 per litre. The government has already been charging Rs85 per litre as petroleum levy on petrol, and the rate increased to a record Rs106 per litre on Friday.
Looking ahead, sources indicated that the IMF is likely to push for an even higher revenue target for the Federal Board of Revenue in the next fiscal year. Preliminary discussions suggest that the international lender may seek a target exceeding Rs16.2 trillion, equivalent to roughly 11.7 percent of the country’s gross domestic product. Final negotiations on these fiscal measures are expected to take place in the coming week as Pakistan prepares to align its tax policy decisions with the requirements of its ongoing IMF programme.
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