ISLAMABAD: Prime Minister Shehbaz Sharif has postponed approval of the budget proposal to increase the income tax rate for salaried individuals, raising hopes of a controversial condition imposed by the IMF.
Sources said that in the last meeting regarding the tax proposals for the new budget, the Prime Minister did not approve the condition of increasing the tax burden on the salaried class, but asked the Finance Ministry to go back to the IMF and request them to withdraw the proposal. directed by
Pakistan’s salaried sector is the fourth highest tax payer after bank depositors, conductors and import taxes. Due to constant double digit inflation, their purchasing power is shrinking rapidly. Despite this, the IMF wants to collect another Rs 600 billion annually from salaried and non-salaried entrepreneurs in the next financial year.
During the first eight months of the current fiscal year, salaried individuals paid 216 billion rupees in taxes. The government’s tax collection target for the next fiscal year is Rs 12.9 trillion, which is 40 percent or Rs 3.6 trillion more than the current fiscal year’s target.
Sources said the IMF has recommended eliminating the salaried-non-salaried distinction and reducing the number of slabs to four to rationalize the tax rate for individuals. It has also asked for lower income threshold for higher rate slabs.
If the IMF’s conditions are accepted and the government lowers the highest taxable income limit for salaried individuals and starts taxing salaried and self-employed individuals at the same income threshold of 35 percent, The highest tax rate will be applicable on monthly income above Rs.333 lakh.
Currently, businessmen are taxed at the rate of 35% on monthly income of Rs 3.33 lakh, while the highest tax rate for salaried persons starts above Rs 5 lakh per month. There are five tax brackets for salaried persons which are 2.5%, 12.5%, 22.5%, 27.5% and 35%. The highest tax bracket is the one whose annual income starts from Rs.60 lakh.
The IMF has also demanded that instead of further relaxing the income tax exemption limit, it should be maintained at the current rate of Rs 50,000. This will adversely affect the lower, middle income groups earning Rs 51 thousand to Rs 1 lakh per month whose purchasing power has been reduced significantly due to inflation.
According to the IMF, a tax exemption of Rs 6 lakh is equivalent to an annual rate of about $2,160, which is close to the regional average. Apart from this, by increasing the sales tax to 18%, the citizens will have to bear another wave of inflation. The IMF has called for the withdrawal of all income tax credits and allowances, particularly credits and allowances available to teachers and researchers. It wants to abolish the tax credit related to Educational Expenses Allowance and Workers’ Welfare Fund.
Sources say that the government has not yet decided to tax the pensioners. At the government level, there are voices in favor of taxing pensions, but the pension limit has not yet been agreed upon. Sources say that the Prime Minister was not in favor of taxing pensioners.
The IMF also wants to end preferential treatment for employees in certain sectors and tax credits for investment in shares, while it has also recommended withdrawing the benefit of reduced tax rates for mortgage payments.
The IMF has also called for increased penalties to improve enforcement of tax laws as existing penalties are not enough to deter people from violating these laws. It recommends that a strict system of penalties is very important to enforce tax laws and promote tax payment.
The IMF has also called for revoking the discretionary power of the Cabinet to grant tax incentives besides revoking the discretionary power of the FBR to grant tax incentives to industrialists.
