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Wednesday, Jul 24, 2024


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Pakistan News

    Title: IMF aims to milk more taxes from salaried individuals
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    IMF Aims To Milk More Taxes From Salaried Individuals 50143
    Description: The International Monetary Fund (IMF) has asked Pakistan to tax the salaried and business individuals at a single income threshold by lowering the highest taxable income limit of the salaried people, which will result in charging a 35% income tax rate at a monthly income of Rs333,000. At present, business individuals are charged the 35% rate at Rs333,000 monthly income while the salaried persons’ highest tax rate starts at over Rs500,000 per month salary. The global lender has also demanded to retain the current income-tax exemption threshold at Rs50,000 monthly income instead of further relaxing it. This will adversely hit the lower middle-income groups earning from Rs51,000 to Rs100,000 a month whose purchasing power has significantly eroded due to constant double-digit inflation. In its set of recommendations for the budget 2025, the IMF has also asked Pakistan to withdraw all income tax credits and allowances particularly available to teachers and researchers. It wants an end to an education expense allowance and workers' welfare fund-related tax credits. These recommendations are part of the IMF’s plan to recover about Rs650 billion additional from salaried and business-income individuals –in a move that would further crush these fixed-income people.Finance Minister Muhammad Aurangzeb said on Tuesday that the IMF mission would arrive in Pakistan in the next 7 to 10 days for negotiations for a new and long-term programme. However, Pakistan needs to deal with the IMF firmly, as any acceptance of these demands may create problems for the government as well as for the people. If the government accepts these recommendations, it may create unease among the salaried persons, particularly at a time when the PML-N government is going soft on the retailers. The government sources said that the IMF has asked Pakistan to rationalize the tax rates for individuals by removing the salaried and non-salaried distinctions. It has also asked to reduce the number of tax slabs to no more than four. Read IMF demands Rs1.3tr in new taxes The sources said that the IMF was of the view that the annual non-taxable threshold is Rs600,000 was equivalent to about $2,160 at the current exchange rate, which is the same as for salaried taxpayers. Salaried individuals have five tax brackets with rates of 2.5%, 12.5%, 22.5%, 27.5% and 35% and the highest tax bracket starting at an annual income of Rs6 million. The FBR was considering increasing the non-taxable income threshold from Rs50,000 to Rs83,000 a month. If the government removes one slab of either 22.5% or 27.5% and also lowers the taxable limit to Rs333,000 per month for the highest 35% rate, the middle and upper-middle-income groups would be adversely hit by this irrational decision. After paying 35% or Rs217,000 tax, the home tax salary for the highest slab would be less than Rs217,000. Earlier, the highest rate of 35% used to be charged on Rs1 million per month salary, which was halved on the IMF’s condition. The sources said that the IMF was of the view that non-salaried individuals face higher effective tax rates, with six brackets at rates 7.5%, 15%, 20%, 25%, 30%, and 35% and the highest bracket for annual income starting from of Rs4 million. The global lender was pushing Pakistan to rationalise these tax rates and slabs and withdrawal of income tax exemptions, preferential tax treatment and end of the allowances would significantly increase the government’s tax revenues. The more preferential tax rates applicable to salaried individuals as compared to non-salaried individuals means that individuals could be incentivized to characterize their income as employment rather than business, which may present administrative challenges as it is often not easy to determine if a case falls within an employer-employee or a customer-consultant relationship, according to the IMF. The sources said that the IMF has also asked Pakistan to review all the income tax exemptions available under the second schedule of the Income Tax Ordinance. These include exemptions to the judiciary and the army. It has desired to eliminate tax credits for investment in the stock market, withdraw reduced tax rates on housing financing and for teachers and researchers, said the sources. According to another proposal, the IMF has Pakistan refund the 12.5% advance income tax to the filers of the income tax returns that it charges from the telephone and mobile phone users. The IMF’s findings suggested that tax collection in Pakistan was dominated by the Punjab and Sindh provinces. Individuals contribute the largest share of income tax revenue, with salaried individuals paying relatively more in Sindh and non-salaried individuals in Punjab. The IMF has told Pakistan that its present personal income tax rate structure presents several problems. It added that the marginal income tax rate structure is largely progressive; it is only applied to certain types of income, leading to inequities between taxpayers who earn different types of income.
    Published Date: 08-May-2024
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