In a key breakthrough, the International Monetary Fund (IMF) has agreed to income tax relief for Pakistan’s salaried class in the upcoming federal budget for 2025-26. According to official sources, this marks a major concession from the IMF during budget negotiations with Islamabad.
Tax-Free Limit Set to Rise
One of the most notable proposals is the increase in the annual tax-free income threshold from Rs600,000 to Rs1 million. This change will exempt monthly salaries up to Rs83,000 from any tax—up from the current Rs50,000 exemption limit.
Lower Tax Rates Across All Slabs
Sources revealed that tax rates across all income brackets are set to be reduced. For instance, monthly earners of Rs100,000 may see their tax rate fall from 5% to 2.5%. Similarly, those earning Rs183,000 could face a reduced rate of 12.5%, down from 15%.
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Salaries of Rs267,000 may be taxed at 22.5% instead of the current 25%. For income up to Rs333,000 per month, the proposed rate is 27.5%, reduced from 30%. Even the highest tax slab—currently at 35%—could drop to 32.5%.
These changes are likely to be enacted through amendments to Section 129 of the Income Tax Ordinance, which governs tax exemptions and concessions.
IMF Concedes on Defence Spending
In another significant development, the IMF has acknowledged Pakistan’s essential defence requirements. During negotiations, Pakistan insisted on maintaining key defence expenditures despite fiscal constraints. The IMF reportedly agreed, allowing room for necessary increases in the defence budget.
Next Steps in Budget Process
These tax changes are expected to be announced officially in the federal budget, which is likely to be unveiled on June 10. The relief measures aim to ease pressure on the middle class while balancing the government’s fiscal responsibilities under the IMF program.
The upcoming budget is seen as critical for stabilizing Pakistan’s economy and supporting both citizens and national priorities.
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