IMF Limits Budget Relief as Government Weighs Tax Cuts for Salaried Class and Businesses

Islamabad: The federal government is considering limited tax relief measures in the upcoming budget as ongoing commitments under the International Monetary Fund (IMF) programme continue to restrict fiscal flexibility.

According to Beyond Time News, policymakers are reviewing a range of proposals aimed at easing the tax burden on middle-income earners and selected business sectors. However, strict IMF conditions may prevent the government from announcing broad-based relief measures.

Limited Fiscal Space Shapes Budget Decisions

Government officials have reportedly presented several tax relief proposals to Prime Minister Shehbaz Sharif. The final decisions will follow consultations with the IMF before the federal budget announcement on June 10.

Authorities face a difficult balancing act. On one hand, they want to provide relief to taxpayers and businesses struggling with rising costs. On the other hand, they must meet IMF targets related to revenue collection and fiscal discipline.

As a result, any relief package is likely to remain targeted rather than comprehensive.

Middle-Income Salaried Workers May Receive Tax Relief

The government is primarily focusing on salaried individuals earning between Rs200,000 and Rs300,000 per month.

Officials estimate that around 550,000 taxpayers fall within this category. Many economists consider this group particularly vulnerable because of rising inflation, higher utility bills, and increasing taxation.

Under one proposal, the government may reduce income tax rates by 4% for individuals earning up to approximately Rs267,000 per month.

Similarly, taxpayers earning up to around Rs341,000 monthly could receive a 5% reduction in tax rates.

These measures aim to provide meaningful relief to middle-income households without significantly affecting government revenues.

Changes Proposed for Higher Income Brackets

The government is also reviewing changes to the highest tax slabs.

Currently, individuals earning more than Rs342,000 per month face a 35% income tax rate along with a 10% surcharge. Many taxpayers consider this one of the most burdensome categories.

Officials are discussing a proposal to increase the threshold for the highest tax bracket. Reports suggest the IMF may support raising the limit to Rs467,000 per month.

Furthermore, policymakers are considering a new tax slab for monthly incomes up to Rs583,000, potentially taxed at 32%.

If approved, the maximum 35% tax rate would apply only to incomes above that level.

In addition, authorities are evaluating the possibility of eliminating the 10% surcharge currently imposed on top earners.

Businesses Seek Relief on Corporate Taxes

Several business groups have urged the government to lower taxes that affect investment and economic growth.

One proposal under discussion involves removing the 15% tax on dividend income paid by companies to parent firms. Experts estimate this measure could reduce government revenue by Rs90 billion to Rs100 billion annually.

Another proposal seeks to abolish the 1% advance income tax imposed on exporters. Exporters argue that the tax increases operational costs and reduces competitiveness in international markets.

However, officials say available fiscal space will determine whether these measures move forward.

Mobile Phone Taxes Remain a Major Concern

The government is also reviewing tax rates on imported mobile phones.

Pakistan currently imposes multiple taxes and duties on mobile handsets, particularly premium devices. In some cases, the total tax burden exceeds 55% of a phone’s value.

For higher-end phones priced above $700, consumers pay several taxes, including regulatory duties, mobile levies, withholding taxes, and sales tax.

Industry stakeholders argue that mobile phones have become essential tools for communication, education, and digital services. Therefore, they believe the government should reduce the tax burden to encourage greater digital inclusion.

Despite these arguments, officials indicate that significant relief in this area remains unlikely.

Fuel Price Decisions Draw Public Criticism

The government’s recent fuel pricing decision has also attracted attention.

Although international petrol prices declined substantially, authorities passed only a small portion of the reduction to consumers. At the same time, they increased the petroleum levy to maintain revenue levels.

Consumer groups argue that higher fuel costs continue to weaken purchasing power and affect household budgets.

Retail sector representatives report lower consumer spending, particularly during the recent Eid shopping season.

Read more:Pakistan and IMF Finalise Key Fiscal Targets for FY2026–27 Budget Framework

Real Estate and Other Sectors Unlikely to Benefit

Sources indicate that the real estate sector may not receive major tax concessions in the upcoming budget.

Officials believe recent reforms, including revised property valuation rates and tax-related adjustments for overseas Pakistanis, have already addressed several concerns.

Meanwhile, the government is reviewing proposals related to cigarette taxation, paper imports, stationery products, hybrid vehicles, and electric vehicles.

There is also discussion about increasing sales tax rates on hybrid vehicles as part of efforts to generate additional revenue.

Budget Balances Relief and IMF Commitments

The upcoming federal budget is expected to reflect the government’s attempt to balance economic relief with IMF programme obligations.

While middle-income taxpayers and some businesses may benefit from targeted measures, broad tax cuts appear unlikely due to fiscal constraints.

The final shape of the relief package will become clearer after the government’s discussions with the IMF conclude in the coming days.

FAQs

Why is the government offering limited tax relief?

The government must comply with IMF programme conditions, which limit its ability to reduce taxes without affecting revenue targets.

Which taxpayers may receive relief?

Middle-income salaried individuals earning roughly between Rs200,000 and Rs300,000 per month are expected to benefit most.

Will corporate taxes be reduced?

The government is considering several business-friendly measures, but no final decision has been announced.

Are mobile phone taxes likely to decrease?

Current indications suggest significant reductions are unlikely despite industry demands.

When will the federal budget be announced?

The federal government is expected to present the budget on June 10, following consultations with the IMF.

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