ISLAMABAD: Federal Minister for Finance and Revenues Miftah Ismail has categorically stated that the government would not add to the burden of salaried class and pensioners in the coming budget.
“We will not increase the tax on salaried class and pensioners in the coming budget,” Minister for Finance Miftah Ismail said while talking to The News on Friday.
When asked about any proposal for bringing gratuity into the tax net, he said that he did not give a go-ahead to such a proposal.
It is relevant to mention here that the IMF has asked Pakistan to reform the Personal Income Tax (PIT) in the coming budget 2022-23 by reducing the number of slabs and jacking up rates and termed it as necessary to bring progressivity in the tax system.
Earlier, top official sources told The News that Pakistani authorities have resisted the proposal to bring pensions into the tax net before the IMF high-ups and in an alternate plan floated another idea to bring gratuity provisions given by private companies into the tax net in the coming budget.
“The IMF floated the idea to bring lofty pensions amount into the tax net but the FBR resisted it sternly arguing that there would be no benefit for the government to raise pension on the one hand and then deduct tax from the other hand,” top official sources confirmed to The News here on Friday.
Keeping in view the inflationary pressures and citing examples of other jurisdictions, the FBR high-ups argued before the IMF that it would bring more miseries to the lives of inflation-stricken masses, especially pensioners so they convinced the IMF to leave this idea.
Instead of bringing pensioners into the tax net, Pakistani authorities presented an alternate plan that the provision of gratuity offered by private corporate firms up to a certain limit should be brought into the income tax net. "The proposal should be devised in such a way whereby the corporate firms should bear the burden of paying income tax as they earned lofty profits in recent years. So instead of burdening individual, the companies should pay the tax amount out of gratuity amount," said senior official and added that out of 100 percent gratuity, there should be a tax on 50 percent and its payment should be the responsibility of the corporate firm.
The gratuity is one of three prevalent retirement benefits in private sector employment. The other two are "Pensions (approved Pensions Fund) and Provident Fund". It is a "lump-sum" amount of money payable to a worker on leaving service (through retirement, death or termination of service) based on salary (highest or the final salary) and period of service (over and above six months).
The official sources pointed out that the share of direct tax (Income Tax) was decreasing in Pakistan at an alarming pace, which used to stand at 40 percent but now it declined to almost 33 percent in recent years. The literature on taxes shows that the direct tax share of less than 30 percent demonstrates an acute inequality and could result in social unrest.
Citing examples, the official said that the Super Tax was imposed on income earners of 50 million but it was withdrawn. The FBR came up with an idea to impose withholding tax on non-filers, which was also abolished in the last budget for 2021-22. In a systematic move, all tax laws burdening the rich and affluent class were removed and through indirect taxes such as General Sales Tax (GST), the burden was shifted towards imposing a tax on branded bread, solar equipment and other necessities of life.
The official sources said that there were 12 slabs for salaried and non-salaried classes and tax experts argued that there was no need to bring three lower slabs. However, the higher slabs could be clubbed and the rate could be increased. However, they were of the view the existing slabs were progressive but the problem arises for higher slabs. The maximum rate of 30 to 35 percent for salaried and business class should be increased for those who were earning Rs20 million on annual basis.
There is another challenge for the budget makers to raise the FBR collection from Rs5.950 trillion in the outgoing fiscal year to Rs7,255 billion for the next budget 2022-23, so the FBR will have to fetch additional revenue of Rs1,305 billion into the national kitty.
The IMF also asked for abolishing the Income Tax exemptions and the government will have to take a policy decision to bring perks and privileges of powerful segments into the tax net.