In a welcome development for the salaried class, the International Monetary Fund (IMF) has conditionally approved financing salary and pension hikes in Pakistan’s next federal budget. But approval comes with conditions.
According to media reports, the IMF has shown willingness to allow tax relief for the salaried class—but only if the government imposes taxes on high-income pensioners. This proposal has sparked internal debate, as taxing pensioners could provoke a strong public backlash and put the government in a politically difficult position.
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Sources indicate that the federal government is planning a 10% salary increase proposal for public sector employees in the next fiscal year. Alongside this raise, there’s a suggestion to reduce the tax burden on salaries. However, the execution of this plan hinges on IMF approval.
To meet IMF conditions, the government is being urged to cut unnecessary subsidies and slash its own expenditures to generate additional revenue for relief. Any cuts in salary taxes, the IMF maintains, will have to be balanced by new revenues, such as potential taxation of higher pension benefits.
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Interestingly, the IMF has raised no objection to Pakistan’s military budget increase, pointing out where it makes a stand in its fiscal management.
Previously, in an important round of negotiations with the International Monetary Fund (IMF), Pakistan’s appeal for relief in taxation to major sectors—such as salaried class, real estate owners, beverage manufacturers, and exporters—has encountered strong resistance.
According to media reports, the IMF has been blunt: any across-the-board relief will happen only if the government sharply reduces spending and hits its ambitious tax collection target.
As the IMF delegation, led by Director for the Middle East and Central Asia Jihad Azour, wraps up its visit today (Friday), this tough stance has become the central theme of the discussions surrounding the upcoming national budget.
Read more: Govt pushes tax relief plan in final IMF budget talks for FY2025-26
One clear exception to the Fund’s austerity line is the defence budget, which is expected to see an increase due to ongoing regional and geopolitical tensions. Sources confirmed that while almost all other sectors will face budgetary constraints, defence spending will be treated as a strategic priority.
