FBR to bring down income tax slabs to five

ISLAMABAD: The Federal Board of Revenue is contemplating different options to bring down the number of slabs for personal income tax from 11 to 5 in line with the UK model during the upcoming budget 2021-22.

Top official sources confided to The News in background discussions that the government plans to introduce reforms in personal income tax in line with the IMF programme whereby 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.

“The FBR has estimated that it is going to collect Rs125 billion on account of PIT in the outgoing fiscal year 2020-21 but after the introduction of reforms in the next budget, the revenue collection can go up to Rs150 billion in 2021-22,” a top official disclosed while talking to The News in background discussions here on Thursday. The FBR had collected Rs116 billion on account of personal income tax in the last fiscal year 2019-20.

The FBR, which is in the process of firming up different taxation proposals, has so far decided that the taxable exemption ceiling for salaried class will be retained at Rs600,000 limit on annual basis in the next budget.

The IMF staff report described the planned reform of personal income tax by stating that it will simplify the system, increase progressivity and support labor formalization. It will reduce the number and decrease the size of the current income slabs, halve current 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 net. The IMF Staff urged the authorities to also follow through with the completion of the reform and harmonization of general sales and personal income taxation in the FY2022 budget as they are key milestones to improving the tax system and place debt firmly on a downward path while making space for much-needed social and development spending.

In this connection, the FBR is working out different options and comparing the existing tax slabs structure with the proposed slabs having reduced brackets of five for both the salaried individuals and business individuals. The FBR has so far rejected any proposal to hike the tax rates for all slabs as it wants to burden those who are making lofty earnings, so the burden of tax incidence will be shifted on those shoulders who are earning more income on monthly basis.

When contacted, a former FBR official and tax expert Shahid Hussain Asad said that there was no need to replicate the model of other developed countries because they had devised slabs keeping in view their ground realities. He said that the basic exemption for tax would be appropriate at 1,200,000 per annum. He suggested that the tax slabs should be widened for income upto Rs3,600,000 per annum. However, the tax incidence can be increased on those who are earning Rs300,000 per month or more, he concluded.