Govt considers raising taxable income threshold, taxing high pensions

The federal government is considering increasing the annual income tax exemption limit from Rs600,000 to Rs800,000 in the upcoming budget, subject to approval from the International Monetary Fund (IMF), according to a news report. 

Sources within the Federal Board of Revenue (FBR) indicated that relief proposals for the salaried class are under review for the fiscal year 2025-26, primarily targeting lower-income brackets. 

The government is also evaluating a separate relief package specifically for salaried individuals earning between Rs600,000 and Rs1.2 million annually, aimed at easing the tax burden for this income group.

However, no significant relief measures are currently being planned for individuals in higher income groups.

In addition to revising the taxable income threshold, the government is exploring measures to simplify income tax returns and potentially revise the sales tax rate, although specific details remain under discussion.

Moreover, a new proposal is being considered to tax high pensions. Under this measure, pensioners drawing annual pensions exceeding Rs800,000 may face varying tax rates: 5% for pensions around Rs800,000, 10% between Rs800,000 and Rs1.5 million, 12% for Rs1.5 million to Rs2 million, 15% for Rs2 million to Rs3 million, and 20% on pensions above Rs3 million.

Authorities emphasise that these proposals are preliminary, with final decisions subject to further consultation and review in coordination with the IMF.