FBR Considers Tax on High Pensions, Plans to Raise Income Tax Exemption Limit

The Federal Board of Revenue (FBR) is drafting two major proposals for the upcoming 2025–26 federal budget, aiming to broaden the tax base and ease the burden on lower-income earners. Both proposals are expected to be submitted to the prime minister for review in the coming weeks.

The first recommendation involves introducing a nominal tax on large pensions. Initially, this measure would focus on high-level retirees, such as Grade-22 officials, by applying a 2.5% tax on monthly pensions exceeding Rs400,000 — equivalent to Rs4.8 million annually. The proposed levy is intended to target those leading affluent lifestyles while drawing substantial post-retirement benefits, leaving modest pensioners unaffected.

A former FBR tax policy official noted that such a move would require a political consensus, as it would touch on sensitive segments of retired public service elites, including members of the judiciary, senior bureaucrats, and armed forces officers.

The second proposal recommends an upward revision of the current income tax exemption threshold, which stands at Rs600,000 under the Income Tax Ordinance, 2001. If approved, the increase would offer relief to a broad section of the population by shielding more low-income earners from direct taxation.

The FBR’s efforts reflect a broader push to enhance tax fairness while addressing economic pressures on ordinary citizens.