Pakistan Considers 2% Tax Hike on Profit Income from Bank Deposits, Savings Schemes in Upcoming Budget

ISLAMABAD:In an effort to provide **relief to salaried individuals and other sectors** under the supervision of the International Monetary Fund (IMF), the **Federal Board of Revenue (FBR)** is considering a **2% increase in tax rates on profit (interest) income** earned from **commercial bank deposits and national savings schemes**.

The proposed change would apply to **both filers and non-filers** in the upcoming **2025–26 federal budget**, as Pakistan seeks to bridge potential revenue gaps arising from relief measures.

### IMF Yet to Give Final Approval

According to senior officials, the **IMF has not yet given final approval** for this tax proposal. The IMF has requested a **detailed breakdown of tax measures** to offset expected revenue losses from planned relief for the salaried class and shrinking formal economic sectors. Pakistan’s **tax collection** has already suffered due to steep tax rates imposed in the FY 2024–25 budget under the IMF program.

### Current Tax Rates and Proposed Changes

* **Current tax on profit income for filers**: **15%**
* **For non-filers**: **up to 35%**
* **Proposed increase**: **+2% for both categories**

The move would effectively raise the **tax on passive income**, impacting both **individuals and corporations** that invest in fixed-income products like savings accounts, term deposits, and national savings.

### Expert Concerns: Impact on Middle Class and Banks

Former FBR Member (Tax Policy) **Dr. Muhammad Iqbal** expressed concerns that the proposed increase would hurt **retirees and middle-class savers** who rely on interest income as their primary financial support. He also warned of possible adverse effects on **commercial banks**, as higher tax rates might discourage deposits, thereby affecting their liquidity and profitability.

He pointed out that:

> “A 15% rate was already high, especially since these deposits often come from previously taxed income.”

He further clarified that:

* The **15% withholding tax** applies only if **annual interest income is below Rs 5 million**.
* If it exceeds this threshold, **total income (including interest) is taxed at normal slab rates**.
* For **corporations**, interest income is taxed at the standard **29% corporate tax rate**, plus **super tax** and **surcharge**.

### Additional Observations

Dr. Iqbal questioned the government’s rationale, asking:

> “When dividend income is taxed at 15%, why create further imbalance by increasing tax on another form of passive income?”

The proposal comes at a time when the **State Bank of Pakistan has already reduced policy rates**, lowering returns on deposits and squeezing income for small investors. A further tax increase could exacerbate financial strain on an already burdened population.

The final decision will depend on **IMF approval** and internal budget negotiations, with the budget expected to be unveiled in **mid-June 2025**.