FBR Considers Tax on High Pensions, Relief for Low-Income Earners in FY2025-26 Budget

Islamabad: The Federal Board of Revenue (FBR) is reviewing two key budget proposals for FY2025-26: introducing a nominal tax on high-value pensions and increasing the income tax exemption threshold, according to sources cited by Business Recorder.

One proposal suggests taxing monthly pensions above Rs400,000 (Rs4.8 million annually) at a rate of 2.5%. This measure would primarily target a small group of high-ranking retired officials such as Grade-22 bureaucrats, judges, and senior military personnel. The aim is to promote tax equity by taxing retirees with substantial incomes who reportedly maintain affluent lifestyles.

The second proposal recommends raising the annual income tax exemption threshold from the current Rs600,000 to provide relief to salaried and low-income individuals amid economic challenges expected in the upcoming fiscal year.

FBR officials noted that both proposals are under internal review and will be presented to the Prime Minister for consideration. While the pension tax may face political resistance, the increase in the exemption threshold is anticipated to be met with broader public support.

The upcoming FY2025-26 budget is expected to focus heavily on direct taxation and structural reforms due to limited capacity for indirect tax relief.