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

Military option
Updated 21 Nov, 2024

Military option

While restoring peace is essential, addressing Balochistan’s socioeconomic deprivation is equally important.
HIV/AIDS disaster
21 Nov, 2024

HIV/AIDS disaster

A TORTUROUS sense of déjà vu is attached to the latest health fiasco at Multan’s Nishtar Hospital. The largest...
Dubious pardon
21 Nov, 2024

Dubious pardon

IT is disturbing how a crime as grave as custodial death has culminated in an out-of-court ‘settlement’. The...
Islamabad protest
Updated 20 Nov, 2024

Islamabad protest

As Nov 24 draws nearer, both the PTI and the Islamabad administration must remain wary and keep within the limits of reason and the law.
PIA uncertainty
20 Nov, 2024

PIA uncertainty

THE failed attempt to privatise the national flag carrier late last month has led to a fierce debate around the...
T20 disappointment
20 Nov, 2024

T20 disappointment

AFTER experiencing the historic high of the One-day International series triumph against Australia, Pakistan came...