FBR opposes IMF’s proposal of Rs176bln new tax on salaried class

KARACHI: Government is resisting a proposal by the International Monetary Fund to cream off an additional Rs176 billion in tax revenue from salaried class in the upcoming budget for fiscal year 2021/22, people familiar with the matter said on Tuesday.

The sources said various tax rates are under consideration to boost the salary income tax collection from existing Rs129 billion to Rs305 billion.

That would make an additional Rs176 billion. The International Monetary Fund (IMF) had proposed the government to increase the revenue collection from salaried persons to Rs305 billion from existing Rs129 billion, in order to create room for development expenditures and reduce budget deficit, according to the sources.

The revenue collection from salary income increased to Rs129.4 billion the during fiscal year 2019/20 from Rs76.4 billion in the preceding fiscal year, showing an increase of 70 percent.

The sources said the Federal Board of Revenue (FBR) raised objections to the proposal of the IMF to increase salary tax collection to Rs305 billion. The FBR in its counter proposal

suggested an increase of up to Rs10 billion in tax collection from salary income.

An official of the FBR said the tax authorities are opposing any significant increase in tax rates for salaried persons in the upcoming budget due to high inflation.

The official said the Prime Minister Imran Khan met with the IMF officials and asked the fund to soften the conditions on energy prices and taxes especially on education, health and agriculture sectors.

The IMF projected the revenue collection of the FBR at Rs5.9 trillion for fiscal year 2021/22 from an expected collection of the current fiscal year at Rs4.6 trillion, an increase of 27 percent. IMF has resumed $6 billion loan program for Pakistan after one-year pause.

Pakistani authorities had agreed with the IMF to simplify and increase personal income tax.

It was agreed to change the existing tax rate structure by reducing the number of rates and income tax brackets from eleven to five and decreasing the size of the income slabs, with a view to simplifying the system and increasing progressivity.

It was also agreed to reduce tax credits and allowances by 50 percent (except for zakat and those provided for disabled and senior citizens).

The authorities pledged to introduce a special tax procedure for very small taxpayers, aimed at preventing further tax base erosion and facilitating the formalization of the economy besides adopting a long-term strategy to reduce labor informality and to bring additional taxpayers into the personal income tax net.

The authorities estimated that the reform was expected to yield 0.4 percent of GDP on an annualised basis.