The government of Pakistan is planning significant income tax cuts for salaried individuals and companies as part of the upcoming fiscal budget, with discussions currently underway with the International Monetary Fund (IMF).
According to official proposals shared with the IMF, the government aims to provide relief to taxpayers by lowering income tax rates across multiple slabs. The proposed changes include exempting annual income up to Rs1 million from taxation, applying a 5% tax rate on income up to Rs2 million, and setting the maximum tax rate at 35% for higher income brackets.
The government is also considering abolishing the 10% surcharge currently applied on high-income individuals, which would effectively reduce the top tax rate. In addition, plans are being discussed to reduce corporate income tax, gradually phase out super tax, and eliminate advance tax on exporters along with certain corporate taxes.
These tax relief measures are expected to impact revenue by Rs400 billion to Rs950 billion, depending on their scope and implementation timeline. To offset this potential loss, Pakistan has committed to introducing new revenue measures worth Rs215 billion.
One of the key proposals includes expanding the third schedule of sales tax law to cover fast-moving consumer goods (FMCGs), where tax would be charged based on the printed retail price rather than value addition. This move is expected to improve tax collection and reduce leakages.
The government is also focusing on enforcement measures such as expanding digital invoicing systems and introducing production monitoring in sectors with significant tax gaps, including sugar, cement, tobacco, beverages, and fertilisers.
An IMF mission led by Iva Petrova is currently in Pakistan to finalise the upcoming budget and review fiscal strategies. Discussions also include power sector payments, gas sector reforms, and financial stability measures.
While the government seeks flexibility in the primary budget surplus target, the IMF has emphasized maintaining fiscal discipline and consolidation.
Overall, the proposed tax cuts aim to provide relief to taxpayers while balancing economic stability through improved revenue collection and enforcement strategies.
