Pakistan plans tax cuts, subsidies in upcoming budget to ease cost of living

Pakistan’s government is weighing several relief measures and administrative reforms in the upcoming budget, set to be announced June 2, according to a report by Topline Securities.

Key proposals include increasing the tax-exempt salary limit from PKR 50,000 ($180) to PKR 100,000 ($360) per month and reducing income tax rates by 2.5% across all salary brackets. Analysts say the move is likely due to rising living costs.

Other potential measures include:

• Reduction in Super Tax: A possible cut from 10% to 8%, though analysts believe any change may be phased in from fiscal year 2027.
• Import Duty Cuts: Potential reductions on vehicle imports or an extension of the age limit for used cars from three to five years, likely taking effect by 2026 under IMF requirements.
• Housing Finance Subsidy: A markup subsidy for up to 200,000 home loans to revive stagnant construction activity, similar to the previous "Mera Pakistan Mera Ghar" scheme.
• Inflation Adjustments: Expected hikes in unconditional cash transfers like the Benazir Income Support Program and minimum wage increases.

The government may also introduce a carbon tax, expanding the petroleum development levy (PDL) to furnace oil and raising PDL on petrol and diesel by PKR 5 per liter over two years. This could generate an additional PKR 35-80 billion ($126-$288 million).

To meet IMF targets, Pakistan may impose a PKR 295-billion ($1.06 billion) tax on retailers by December 2025 and increase federal excise duties (FED) on fertilizers and pesticides by 5%, raising over PKR 30 billion ($108 million).

Additional proposals include taxing social media income, eliminating reduced GST rates on some products, and raising GST on luxury items like jewelry, cosmetics, and high-end electronics.

The budget is expected to balance relief measures with fiscal consolidation demands under Pakistan’s IMF program.