Pakistan plans to tax pension income of PKR 400,000

The Pakistan government plans to tax pension income of PKR 400,000 at a rate of 2.5% in line with the International Monetary Fund's (IMF) recommendations, sources in the Ministry of Finance told Nukta on Monday.

An IMF team is due in Pakistan on May 14 to discuss the budget for the upcoming fiscal year. Discussions are expected to be centered on increasing tax revenues and taking the tax-to-GDP ratio to beyond 11% from 10.6% at present.

One of the ways the government is planning on increasing tax revenue is by imposing a tax of 2.5% or PKR 10,000 on pension income of PKR 400,000.

In comparison, if an individual is drawing a salary of PKR 400,000 per month, the tax levied per month is around PKR 78,750.

The IMF has been advocating that any income generated at any level or in any sector should be taxed and no subsidy should be given.

The pension amount has been monstrous and third-biggest expense for the federal government after debt servicing and defense spending.

The pension spending during fiscal year 2023-24 was around PKR 808 billion, up from PKR 666 billion in the previous year, showing a jump of 21%.

For the current fiscal year, planned pension disbursement has been around PKR 1,014 billion, showing a rise of 25% from the preceding year.

Meanwhile, there are two proposals under consideration — one, to exempt people earning up to PKR 800,000 per year from tax and the second to exempt people earning up to PKR 1,200,000 per year from tax.

If tax slabs are expanded to seven from six, the salaried class, especially those who earn in the bracket of 150,000 to 250,000 per month, might get some relief.