Pakistan commits IMF to slap taxes worth Rs160bn on salaried class

Under the now-resumed International Monetary Fund (IMF) programme, Pakistan has committed to draft Personal Income Tax (PIT) legislation till the end of the ongoing month (February 2022) for slapping approximately Rs160 billion tax on the salaried class by jacking up tax rates and reducing the number of slabs, The News reported.

This PIT will be announced in the budget for 2022-23 and will become effective from July 1, 2022.

According to a staff report released by the Fund on Friday, the government has committed with the IMF that parliamentary approval will be sought on new state-owned enterprises (SOEs) in line with staff recommendations by the end-June 2022.

Moreover, the government has also committed with the IMF for the issuance of regulations by the Public Procurement Regulatory Authority (PPPA) to require collection for publication of beneficial ownership information from companies that are awarded public procurement contracts for Rs50 million and above till end-March 2022.

The report stated that Pakistani authorities are in the process of drafting PIT legislation by the end of February 2022 (new end-February 2022 structural benchmark) to ensure it will be ready to come into effect on July 1, 2022 along with the financial budget for the fiscal year 2022-23.

Aiming to simplify the system, increase progressivity, and support labour formalisation, it 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;
  • Bring additional taxpayers into the tax net. 

Low-income households will remain protected as the reform preserves the current PIT threshold (almost three times income per capita).

Meanwhile, the Fund stated that GST base harmonisation will be critical to improving competitiveness and the business environment. Under the current system, the sales tax base is fragmented, with services subject to provincial taxation and goods under federal government taxation. 

The fragmentation of the tax base has severely compromised tax policy design and administration, generated disagreements over tax base definition and crediting, caused cascading and double taxation for businesses, and significantly increased compliance costs.

Indeed, the system is cumbersome and harms competitiveness by increasing the cost of doing business.

The IMF staff assessed that risks continue to be tilted to the downside, both on the domestic and external front.

The Washington-based lender’s outlook for growth, trade, and remittances remains clouded amid the ongoing COVID-19 pandemic, especially at the global level, while inflation may rise further than expected as commodity prices feed through to domestic prices.

In addition, political tensions over reforms could weaken policy implementation, and undermine Pakistan’s adjustment path, debt sustainability, and growth potential.

Moreover, reform fatigue and the political cycle could quickly narrow the window to undertake critical reforms.

Tapering, geopolitical tensions, and waning reform efforts could affect external financing conditions.

Close programme monitoring and financing assurances from key lenders somewhat mitigate those risks, the report said.

Related posts