Pakistan eyes super tax cuts, growth push in next federal budget

Pakistan has begun preparations for its next federal budget in line with structural benchmarks set under its International Monetary Fund program, with the government considering tax relief measures, changes to the controversial super tax and requests for flexibility from the IMF, officials familiar with the matter said.

Sources said the Ministry of Finance has started working on the upcoming budget with a focus on boosting economic growth, promoting investment and reducing unemployment and poverty.

The government is also examining options to cut electricity tariffs and provide broader tax relief, including possible reductions in the policy interest rate.

Officials said the government plans to seek relief within the IMF loan program and will request significant changes to the program’s structure while keeping it on track.

These proposals are under discussion at the highest levels of government, the sources said.

As part of the budget planning for the next fiscal year, the government, in consultation with the IMF, is also preparing to seek easing of targets related to the primary budget balance and provincial budget surpluses.

The government aims to achieve economic growth of 5% to 6% in its final year in office, according to the sources.

Prime Minister Shehbaz Sharif has directed the Ministry of Finance and the Federal Board of Revenue to ensure full cooperation with the business community during the budget process.

A major component of the proposed budget is reform of the super tax imposed on high-income sectors, particularly manufacturing.

Sources said a decision has been made in principle to reduce the super tax rate for the manufacturing sector under a new industrial policy.

Under the proposed reforms, the super tax rate for manufacturers would be gradually reduced over four years to 5%. If the primary balance remains in surplus, the tax would be abolished entirely in the fifth year, the sources said.

The government is also considering raising the minimum income threshold for the super tax on the manufacturing sector from PKR 200 million to PKR 500 million.

In addition, the threshold for applying the 10% super tax is proposed to be increased from PKR 500 million to PKR 1.5 billion starting with the next budget.

An independent economic analyst said the proposed measures signal an effort by the government to balance IMF discipline with domestic economic pressures.

“Reducing the super tax and raising thresholds could provide meaningful relief to the manufacturing sector, which has been under stress from high energy costs and interest rates,” the analyst said.

“However, the success of these plans will depend on how much flexibility the IMF is willing to allow and whether the government can maintain fiscal discipline while offering relief.

Without sustained reforms and revenue broadening, growth targets of 5% to 6% will be difficult to achieve.”

The upcoming budget is expected to be presented later this year, following consultations with the IMF and key stakeholders.