Government Plans Tax on High Pensioners in Upcoming Budget

The government is considering imposing a tax ranging from 2.5 to 5 percent on monthly pensions exceeding Rs400,000 in the upcoming budget for the financial year 2025-26, aiming to manage the ballooning pension expenditure.

According to Topline Securities, Pakistan’s pension bill has doubled from Rs0.5 trillion in FY 2022 to Rs1 trillion in FY 2025. To tackle this rising cost, the government is exploring a tax on pensioners earning more than Rs400,000 per month, which could potentially generate Rs20 billion to Rs40 billion in additional revenue.

The pension budget has increased sharply over the past decade due to a growing retiree population. Another significant factor is the commutation of pensions, allowing retired employees to receive seven and a half years’ worth of pension in advance—calculated at 35 percent of their pension.

Pensions now account for the fourth-largest federal budget component, following debt servicing, defence, and development spending. The finance ministry warns that without cutting pension benefits, Pakistan would need assets worth Rs10 trillion to sustainably fund pensions. However, actuaries have revised this figure to Rs7 trillion under new assumptions.

Pakistan is set to announce a stringent federal budget in June, with government insiders revealing plans for tough fiscal measures to broaden the tax base and reduce the deficit—key demands from the IMF during recent talks. These measures are expected to impact luxury goods, agriculture, and the clean energy sector.

Officials say sales tax on luxury imports could increase above 25 percent, and previously exempted items like solar panels may face taxation. Meanwhile, technology-driven tax enforcement will be intensified, with significantly higher fines for retailers who fail to comply with point-of-sale (POS) system requirements. Non-compliance could even lead to criminal proceedings.

“The fiscal space is shrinking, and the IMF wants clear, verifiable steps. There’s little room left for leniency,” stated a senior government official involved in budget planning.

To plug tax leakages, the Federal Board of Revenue plans to strengthen enforcement efforts, with penalties for dodging POS requirements possibly increasing tenfold—from Rs0.5 million to Rs5 million—and granting expanded powers to enforcement officers under the new regime.