ISLAMABAD: At a time when the economy is grappling with political uncertainty, the International Monetary Fund (IMF) reiterated its earlier demand asking Islamabad for changes in personal income tax (PIT).

A staff mission of the IMF held a first round of discussions with tax officials last week and raised the issue of reforms in the PIT to raise maximum revenue, especially from salary incomes.

Last year, the government did not accept the same demand of the Fund.

These demands are part of the seventh review of the $6 billion of the Fund Extended Fund Facility (EFF). In the wake of the sixth review, the government withdrew tax exemptions worth Rs343bn as against the IMF demand of Rs700bn.

A well-placed source told Dawn that as part of the reforms, the IMF has demanded to reduce the salary income tax slabs from the existing 12 to six with an increase in the rates. The demand is one of the conditions for consideration in the next budget.

As per one of the proposals the burden of tax payment would be decreased on lower-income ceiling earning Rs600,000 per annum, while tax incidence would be increased on those who are earning over Rs300,000 per month basis.

Also read: IMF approves $6 billion loan for Pakistan

At the same time, it is also proposed to bring reforms in Provident Fund and other allowances for taxation.

Pakistan has already held out an assurance to the Fund to make legislation about PIT before the budget to ensure that it will be ready to come into effect from July 1.

The broader contours of the reforms are at simplifying the system, increasing progressivity, and supporting labor formalization.

This will reduce both the number of rates and income tax brackets; reduce tax credits and allowances (except those for disabled and senior citizens, and Zakat receipts); introduce special tax procedures for very small taxpayers; and bring additional taxpayers into the tax net.

Moreover, the low-income households will remain protected. The IMF estimates that these PIT reforms will yield an estimated 0.3 per cent of GDP in revenue gains in FY2024.

According to the source, the government has already committed to making the legislation by the end of February 2022. “We are committed to reforming our PIT,” the source said, adding the reforms include changing the existing tax rate structure by reducing the number of rates and income tax brackets (slabs) to simplify the PIT system and increase progress. It will also reduce tax expenditures and allowances.

Published in Dawn, March 23rd, 2022

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Disregarding CCI
Updated 04 Nov, 2024

Disregarding CCI

The failure to regularly convene CCI meetings means that the process of democratic decision-making is falling apart.
Defeating TB
04 Nov, 2024

Defeating TB

CONSIDERING the fact that Pakistan has the fifth highest burden of tuberculosis in the world as per the World Health...
Ceasefire charade
Updated 04 Nov, 2024

Ceasefire charade

The US talks of peace, while simultaneously arming and funding their Israeli allies, are doomed to fail, and are little more than a charade.
Concerning measures
Updated 03 Nov, 2024

Concerning measures

The govt must seek political input and consensus on the changes it is seeking to make and be open about its intentions.
Short-lived relief?
03 Nov, 2024

Short-lived relief?

POLICYMAKERS must be jumping with joy. At the close of the first quarter of FY25, the budget posted a consolidated...
Brisk spread
03 Nov, 2024

Brisk spread

THE surge in polio cases has reached distressing levels with a tally of 45 last reported, after two cases emerged in...