IMF Push: Govt Eyes Tax on Large Pensions

In a major development ahead of Pakistan’s upcoming budget, the federal government is considering a new income tax on high-value pensions, as recommended by the International Monetary Fund (IMF). This move is part of broader economic reforms required by the IMF in exchange for a fresh bailout package.

• IMF wants Pakistan to expand its tax net

• Monthly pensions over Rs. 400,000 could be taxed

• Proposed tax rate: 2.5%

• Targeting wealthy pensioners, especially retired military and civil officers

• Could generate Rs. 22–25 billion annually

• Part of Budget 2025–26 under negotiation

Pakistan is under immense financial pressure and is negotiating another loan program with the IMF. One of the IMF’s main demands is to remove tax exemptions that benefit the wealthy, especially those who are not currently paying income tax on large pension amounts.

This tax proposal aims to:

• Broaden the tax base

• Increase government revenue

• Reduce the fiscal deficit

• Promote economic fairness

If approved, the tax will apply to retired individuals receiving more than Rs. 400,000 per month in pensions. This includes:

• Senior retired civil servants

• Former military officers

• Top-level public sector retirees

It’s important to note that average pensioners will not be affected. Only a small percentage of high-earning individuals will fall under this new tax rule.

• The government is considering a 2.5% income tax on the monthly pension amount above Rs. 400,000.

• For example:

  • If someone receives Rs. 500,000/month, they will pay tax only on the extra Rs. 100,000.

  • 2.5% of Rs. 100,000 = Rs. 2,500/month in tax.

This amount may seem small for those in high-income brackets, but collectively, it could help the government raise billions in revenue.

This proposal is not just a local initiative. It is part of the IMF’s reform plan to reduce Pakistan’s budget deficit and make the tax system more equitable.

IMF Recommendations Include:

• Ending tax exemptions for privileged groups

• Implementing progressive taxes

• Making the wealthy contribute more

• Avoiding new general sales taxes (GST) that burden the poor

• The tax is expected to be introduced in the Budget 2025–26.

• The official announcement may happen in June 2025.

• The new rule will apply starting from the new fiscal year (July 2025) if passed by the Parliament.

• “It’s fair to tax those who can afford it.”

• “Retirees with big pensions should contribute like everyone else.”

• “The move helps Pakistan become financially independent.”

• “Retired officers already served the nation, why tax them again?”

• “Pensions are not income; they are retirement benefits.”

• “This could hurt morale in public service sectors.”

• “It’s a smart move if done correctly.”

• “The government should also fix loopholes in property and retail tax systems.”

• “Taxing the rich is better than taxing the poor through inflation.”

Some legal experts believe the government has the constitutional right to amend tax laws through the Finance Bill, which is part of the annual budget. However, any taxation measure will likely face debate in Parliament and possibly even legal challenges from affected groups.

This pension tax proposal may seem controversial, but it reflects a bigger shift in economic policy. Pakistan needs more sustainable sources of revenue, and that means ensuring the wealthy contribute their fair share.