Pakistan likely to increase salaries and pensions by 10% in the upcoming budget

Pakistan government is expected to increase salaries and pensions by 10% in the upcoming 2025-26 budget, despite challenges in improving the tax-to-GDP ratio.

The government will present the federal budget on June 10, following virtual deliberations with the International Monetary Fund (IMF), which has been asked to provide relief to salaried individuals.

The salaried class has faced significant pressure due to higher tax slabs and rising inflation.

Projected tax collections from salaried individuals are expected to surge to PKR 550 billion, up from PKR 368 billion, while exporters and retailers collectively contributed only PKR 100 billion in taxes.

However, the IMF has opposed proposed tax cuts for the salaried class, questioning how the government will offset an estimated PKR 110 billion shortfall in income tax revenue.

Additionally, the IMF has urged Pakistan to abolish all sales tax exemptions, impose sales tax on solar panels, and introduce a 1.5% import duty.

Pakistani officials are holding virtual meetings with IMF representatives, with discussions on 2025-26 tax measures expected to continue next week.

The government faces pressure as the IMF pushes for higher tax collection. The tax target for the next fiscal year is projected between PKR 14.1 trillion and PKR 14.3 trillion, but officials anticipate a shortfall of PKR 500-650 billion before finalizing the target.

This gap necessitates new tax measures to boost the tax-to-GDP ratio.

There are certain other budgetary measures under consideration including a new 1.5% withholding tax on all imported goods (excluding raw materials for industries and exports).

Mandatory registration of all real estate developers and agencies with the Federal Board of Revenue (FBR) under the 2025-26 Finance Bill is also been proposed.