Govt mulls tax on Rs400,000 monthly pensions ahead of IMF talks

May 06, 2025 (MLN): The government is considering a proposal to tax monthly pension withdrawals of around Rs400,000, as part of upcoming budget discussions with an International Monetary Fund (IMF) mission that is scheduled to visit Pakistan on May 14 for a week-long engagement to explore measures for increasing the tax-to-GDP ratio.

A key priority of the talks will be identifying ways to boost tax revenues, with the main objective of raising the country’s tax-to-GDP ratio above 11%, up from the current year's 10.6%, according to sources close to the Finance Ministry.

Among the proposals under review is the potential taxation of pension income. The IMF has consistently pushed for broadening the tax base, advocating that all income, regardless of its source, should be taxed, with minimal room for subsidies or exemptions.

Pension payments have become a significant financial burden, ranking as the third-largest federal expense after debt servicing and defense.

As part of the discussions, the IMF has proposed a 2.5% tax on pension amounts of Rs400,000 per month, which would translate into a tax deduction of Rs10,000 monthly.

In contrast, salaried individuals earning the same monthly amount currently face a tax liability of around Rs78,750.

To ease the burden on salaried taxpayers, two proposals are being considered for annual income tax exemptions, Rs800,000 and Rs1,200,000.

Additionally, the government is evaluating the expansion of tax slabs from four to seven, which could provide some relief, particularly for those earning between Rs150,000 and Rs200,000 per month.

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