FBR to reform income tax, GST on IMF diktat

ISLAMABAD: The International Monetary Fund (IMF) has asked the Federal Board of Revenue (FBR) to fetch Rs7.2 trillion in taxes in the upcoming budget, for which personal income tax (PIT) and harmonisation of general sales tax (GST) were being targeted.

“Discussions are underway as the FBR pitched up its tax collection target in the range of Rs6.9 trillion, but the IMF insists upon stretching FBR’s tax collection in the range of Rs7.2 trillion in the coming budget for 2022-23,” top official sources confirmed while talking to The News on Thursday.

FBR Chairman Asim Ahmed, who was contacted for comments, said that work in this regard was still underway.

Overall tax collection would be increased to Rs7.2 trillion for the next budget against revised estimates of Rs5.9 to Rs6 trillion for the outgoing fiscal year. The government was also facing difficulty in materialising the non-tax revenue target for the outgoing fiscal year, as the State Bank of Pakistan (SBP) did not provide its quarterly profit of an estimated Rs200 billion to the Ministry of Finance after enactment of the new SBP Amendment Act 2022. This amount might be provided in the next fiscal year, but it was difficult for the SBP to give it before June 30, 2022.

PIT would be reformed in a big way, whereby the taxable ceiling would likely be jacked up from the existing level of 0.6 million to Rs1-1.2 million, while the number of slabs would be reduced from 13 to six. The IMF also proposed to increase tax rates substantially.

Former Finance Minister Dr Hafiz A Pasha said that the taxable ceiling limit should be increased from Rs0.6 million to Rs1.2 million in the next budget, but the number of slabs should be reduced substantially. He said maximum tax rate was imposed on the annual income ceiling of Rs 5 million per annum, which was 300 percent higher than per capita income in Pakistan. He proposed that a full tax rate should be imposed on those who earned Rs20 million or more on an annual basis.

He also proposed that the tenure and rate of capital gains on stock shares should be reviewed and adjusted to collect more taxes.

The reforms in PIT aim to simplify the system, increasing progressivity, and supporting labour formalisation. It would 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, and bring additional taxpayers into the tax net. Low-income households would remain protected as the reform preserves the current PIT threshold (almost three times income per capita).

The government committed to reforming PIT to change the existing tax rate structure by reducing the number of rates and income tax brackets (slabs). It would also reduce tax expenditures and allowances. These PIT reforms would yield an estimated 0.3 percent of GDP in revenue gains in FY 2024.