Govt reviewing Personal Income Tax slabs

ISLAMABAD: Chairman Federal Board of Revenue (FBR) Asim Ahmad said on Tuesday the government was reviewing slab rates of Personal Income Tax (PIT) for aligning those with the IMF demands.

However, he was of the view that it was a dilemma as there was a narrow base that made it difficult to place an exorbitant rate from 35 to 70 percent for higher-income slabs. Most of the taxpayers were excluded from initial slabs and the government wanted to protect the monthly income earner of Rs0.2 million.

“It is difficult situation and different options are under consideration for jacking up rates of income slabs beyond income earner of Rs0.2 million per month as this step could reduce the relief from the existing Rs47 billion proposed through the budget,” Chairman FBR, Asim Ahmad, said while talking to reporters outside the Senate Standing Committee on Finance meeting here at the Parliament House for finalizing recommendations on budget 2022-23 on Tuesday.

The government is considering keeping low rates of slabs up to income earners of Rs5 million after which all the remaining slabs will be adjusted upwards to recover the existing relief of Rs47 billion on Personal Income Tax and then ensure net collection up to level acceptable to the IMF.

Meanwhile, the IMF wants withdrawal of petrol and diesel subsidies by passing on full-fledged pricing by the end of the ongoing financial year. This clearly indicates that the government will have to hike the POL prices twice within the ongoing month for abolishing subsidies.

On tax revenue side, the IMF wants major changes in PIT as the Fund raised objections that the FBR moved in different way to what they agreed on the occasion of completion of 6th review under the $6 billion Extended Fund Facility (EFF). The IMF has placed PIT reforms as structural benchmark and Pakistan made a commitment to share the roadmap for implementing PIT reforms with the IMF by end of last February 2022 with the decision to implement it in the budget 2022-23 with effect from July 1, 2022.

The IMF also asked Islamabad to jack up the FBR’s tax collection target from Rs7,004 billion to Rs7,255 billion for the current fiscal year with adjustments in different tax rates. On petroleum levy, the IMF considers that it is an over-ambitious target, so it should be rationalized accordingly in line with projections reconciled with the Fund staff.

The government has jacked up collection from petroleum levy to the tune of Rs750 billion for the next fiscal year against revised projection of Rs130 billion for the outgoing fiscal year. The government proposed jacking up limit of petroleum levy from Rs30 to Rs50 per liter.

There is another bone of contention over the projection of Rs200 billion collection on account of GIDC (Gas Infrastructure Development Cess) as it might create another hole on fiscal side.

The power sector losses, exact subsidies, monster of circular debt and capacity repayments are also problematic areas. The Fund also requires more details on Chinese IPPs repayments. This scribe contacted Dr Khaqan Najeeb, former adviser, Ministry of Finance. He said that the personal income tax exemption limit was raised from Rs600,000 to Rs1,200,000, which would mostly benefit middle income salary earners. This is a good step and revenue loss will be limited.

However, the redesign of the overall slabs is not encouraging. It has created a relief in Personal Income Tax of Rs47 billion, close to 40% of what was collected under PIT. It has given a tax break to high-income earners. A person earning Rs1 million a month or a whopping Rs12 million a year has been given a relief of Rs28,000 monthly. Potentially, this is a big stickler with IMF. Policymakers will have no option but to change this proposal if they hope to have a breakthrough with the Fund.

He concluded the PIT reforms should be clear in providing relief to urban middle class, as they have been most hit by inflation. To accomplish this, relief should be restricted to those earning a maximum salary of Rs200,000 a month. The higher income earners can be kept at the same level as last year or can have an increase in rates as the slabs are decreased to a more reasonable level from 11.