IMF, Pakistan near consensus on cut in tax rates for salaried class

ISLAMABAD: The IMF and Pakistan are heading towards evolving consensus on proposed reduction in tax rates for the salaried class in the budget for 2025-26, it has been learnt.

However, it will be a challenge for the budget makers to achieve Rs14.2 trillion target in the next budget, as the basis for next fiscal year’s target has seen a widening tax shortfall in meeting downward-revised tax collection target of Rs12.33 trillion.

The IMF and FBR held hectic parleys on Friday night, and the Fund staff, in principle, granted broader permission to reduce tax rates in different slabs of the salaried class. The IMF has estimated this reduction will provide a relief of Rs56-60 billion in the coming fiscal year. The FBR will have to propose taxation measures in the income tax to bridge this gap.

“We have proposed certain taxation measures to satisfy the IMF for providing relief to salaried class in the coming budget,” a top official of the negotiating team confirmed to The News on Saturday.

The official said reduction in the proposed slabs of salaried class had not yet been worked out fully. The FBR proposed just one percent tax on the first slab, ranging from Rs0.6 million to Rs1.2 million earners per year, compared to the existing rate of 5pc.

The existing tax rate of 5pc for the first slab turns into Rs30,000 tax, and if proposed rate of 1pc is agreed, this tax paid amount will be reduced from Rs30,000 to Rs6,000 for earnings up to Rs100,000.

The IMF is insisting on collecting a 1.5pc tax rate from the first slab, so if a 1.5pc tax is imposed, then they will have to pay Rs9,000 tax.

For the remaining slabs, there is a proposed reduction of 2.5pc in each income slab of salaried class, and the maximum slab rate will be reduced from 35 to 32.5pc. However, exact calculation of the whole cost has not yet been ascertained and reconciled between the IMF and FBR high-ups.

When asked about the fate of surcharge of 10pc and imposition of Super Tax, the sources said surcharge and Super Tax would also be rationalised gradually, and a reduction in tax rates will kick-start from the next budget.

Top official sources confirmed the budget makers were worried about the proposed tariff rationalisation plan on imports because if the plan envisaged by the Commerce Ministry and National Tariff Commission was implemented, it would cost revenues to the tune of Rs200 billion.

It has been argued tariff reduction will kick-start sluggish economic activities, boosting revenue collection. If this argument is accepted, the revenue loss will stand at Rs150 billion in the coming budget.

The FBR high-ups were also perturbed with tariff rationalisation plan. They argue when tariffs on plenty of imported items were going to be reduced, how Customs officials would curb misdeclarations. There are growing apprehensions the higher tariff goods might be declared and cleared in lower tariff categories.

There is another apprehension the FBR target was going to be fixed on wrong assumptions, as in the first 11 months, shortfall in revenues widened to more than Rs1 trillion in comparison to original target of Rs12,970 billion for the current fiscal year. Although, the target was revised downward to Rs12,332 billion with the consent of IMF, achieving this target seems impossible by June 30, 2025.

In such circumstances, if the next year target of Rs14.2 billion was envisaged on the basis of a wrong assumption of Rs12,332 billion for the outgoing fiscal year, the next FBR target will be based on unrealistic numbers.

The IMF also raised objections over allocation of 2,000MW of electricity for mining of cryptocurrency without seeking prior approval from the Energy Ministry and its Regulator, Nepra.