ISLAMABAD: The government is likely to revoke tax concessions that excessively benefit high-earning people over the middle-class workforce, local media reported.
According to an English newspaper, the International Monetary Fund (IMF) has recommended to the government of Pakistan to treat salaried employees’ incomes similarly to that of people (non-salaried) as personal income. However, the Federal Board of Revenue (FBR) expresses disagreement with the suggestion and believes that both incomes cannot be measured equally. According to the newspaper, if salary and non-salary incomes are deemed personal incomes as per the IMF’s recommendation, the tax burden on the salaried class will rise significantly. The revenue measures planned thus far are Rs500 billion for the upcoming budget. However, the actual quantum of revenue measures will be agreed upon following receiving the IMF’s final projections regarding the revenue collection target.
According to FBR predictions, autonomous revenue collection (based on GDP growth and inflation) will exceed Rs1,150 trillion in FY25. Moreover, the federal government will also consult with the IMF before taking decision on revenue measures, the newspaper reported. In the last budget, the government announced revenue measures totalling Rs415bn. The FBR has recommended raising the tax exemption limit for the salaried class to Rs1.2m in 2024-25. However, the request is then amended downward to Rs900,000 from the current exemption limit of Rs600,000, with the demand made based on high inflation.
The FBR has also held discussions the workings of the pension tax with the IMF. The IMF aims to match the salary slab to the income of pensioners. However, the FBR’s activity is limited to the pensions of employees of the federal government. The federal government employees’ pension is projected to be worth about Rs700bn. The FBR has objected to introducing a salary slab for pensioner income and has suggested an alternative mechanism for taxing richer pensioners.
In the private sector, large firms provide pensions to their employees. Dawn cited a tax official as saying “There has been no final decision on this so far,”. He said that the Ministry of Finance is discussing pension-related tax changes with the IMF.
The official added that the elimination of exemptions will also be addressed in a prior consultation with the International Monetary Fund, adding the FBR had given all data on possible revenue following these exemptions are withdrawn. The IMF has also asked FBR to collect taxes from wholesalers and traders, who are not contributing to tax collection.
No agreement has been reached to rise regulatory tariffs on imports. The IMF does not suggest import duties as its primary focus is on sales tax and income taxes, especially withholding taxes. Currently, the sales tax exemption also exceeds Rs1.2 trillion. However, the government will confront a tough decision to revoke exemptions for food, and pharmaceutical products.
According to the newspaper, at the same time, the government would increase existing withholding tax. Similarly, the newspaper reported that the ministry of finance is also considering imposing a tax on the import of exempted raw materials while increasing tax rates on existing ones.
