Islamabad: The Federal Board of Revenue (FBR) is evaluating two major proposals for the upcoming fiscal year’s budget: taxing high-value pensions and raising the income tax exemption threshold, sources told Business Recorder.
The first proposal under consideration is to impose a nominal tax on pensions exceeding a high-income threshold. According to sources, individuals receiving Rs400,000 or more per month (equivalent to Rs4.8 million annually) could be taxed at a suggested rate of 2.5%. This measure is likely to target high-ranking retired officials, including Grade-22 bureaucrats, judges, and senior members of the armed forces.
Officials noted that the tax would only apply to a small, specific segment of pensioners and would not affect those receiving lower pension amounts. The rationale behind this move is to introduce greater equity into the tax system, especially as some retirees reportedly enjoy a luxurious lifestyle while drawing substantial pension amounts.
The second proposal involves increasing the current income tax exemption threshold, which stands at Rs600,000 per year under the Income Tax Ordinance, 2001. This measure is intended to provide relief to salaried individuals and low-income earners in the face of anticipated fiscal tightening in the FY26 budget.
According to FBR sources, both proposals are in early stages of internal assessment and will be submitted for the prime minister’s review and approval. While the tax on high pensions could be politically sensitive, the exemption threshold hike is expected to gain wider public support.
The budget for FY2025-26 is expected to be challenging, with limited room for indirect tax relief and a focus on revenue generation through direct taxation and structural reforms.
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