Govt mulls special levy on those who earn over Rs20m a year

ISLAMABAD: The government is considering imposing a special levy or increasing the tax burden on salaried and non-salaried classes earning more than Rs20 million per annum in the upcoming budget 2022-23.

Prime Minister Shehbaz Sharif has chaired a high-level meeting to discuss the salient features of the coming budget. The premier will have to make a choice either to increase tax collection and then jack up subsidies or reduce the tax collection target and subsequently subsidies allocation will also be reduced.

The government is contemplating increasing the tax burden on rich and affluent segment of the society instead of jacking up the share of indirect taxes. “Yes, we are considering increasing tax on the rich,” said top official sources. One of the proposals is to impose tax on the pattern of super tax, which was imposed at the rate of five percent on income earners of Rs50 million per annum but later on its rate was reduced and finally got abolished.

All such decisions will be taken by Prime Minister Shehbaz Sharif after his return from Turkey. Prime Minister Shehbaz Sharif will have to take a policy decision either to increase the subsidies allocation and jack up the tax collection target or reduce amounts of subsidies and decrease the FBR’s tax collection target for the coming budget 2022-23. To align with the IMF’s proposed fiscal framework, the government will have to make a policy choice between these two scenarios.

Prime Minister Shehbaz Sharif chaired a meeting on finalising the next budget for the next financial year but he had to leave for Turkey, so policy-level decisions could not be taken.The Finance Ministry high-ups floated choices in front of the premier and sought his guidance and policy choices to finalise the Budget Strategy Paper (BSP) and fiscal framework.

“The fiscal framework has so far remained fluid because the government did not make decision of its policy choices,” said the sources. They said that the government would have to make fiscal adjustments of around two percent of GDP whereas the size of the GDP is expected to touch around Rs78.4 trillion in the next fiscal against Rs67 trillion for the outgoing fiscal.

The FBR seeks to collect Rs6,100 billion for the outgoing fiscal year 2021-22 ending on June 30, 2022.The IMF wants FBR’s tax collection target in the range of Rs7.5 trillion in the next budget whereas the FBR wants to restrict its annual target in the range of Rs7.2 trillion for the next budget.

With nominal growth of 16.5 percent, including real GDP growth rate of five percent and inflation target of 11.5 percent for the next fiscal year, the FBR collection might touch Rs6,700 billion but the board will have to take additional revenue measures to jack up its collection up to Rs7.2 trillion to Rs7.5 trillion.

The FBR high-ups argued that the nominal growth plus depreciating exchange rate helped it collect more taxes, so it would not be problem for the tax collection machinery to net Rs7.255 trillion in the next budget.