The International Monetary Fund (IMF) has presented a series of recommendations to Pakistan regarding taxation, aiming to generate additional revenue. These suggestions include taxing salaried and business individuals at a single income threshold, which would involve lowering the highest taxable income limit for salaried individuals to Rs333,000 per month, resulting in a 35% income tax rate. Currently, the 35% rate applies to business individuals at the same income level, while salaried individuals face this rate at a higher income threshold of over Rs500,000 per month.
Moreover, the IMF has advised maintaining the income-tax exemption threshold at Rs50,000 monthly income and withdrawing all income tax credits and allowances, including those for teachers and researchers. These recommendations are part of the IMF’s efforts to generate approximately Rs650 billion in additional revenue from salaried and business-income individuals.
The IMF’s proposal includes rationalizing tax rates for individuals by eliminating distinctions between salaried and non-salaried taxpayers and reducing the number of tax slabs to no more than four. It also suggests reviewing income tax exemptions, including those for the judiciary and the army, and eliminating tax credits for investment in the stock market and reduced tax rates for housing financing, teachers, and researchers.
Also Read: IMF Urges Pakistan to Increase Taxation by Rs. 1.3 Trillion in Next Fiscal Year
However, accepting these recommendations may pose challenges for the government and the people. It could lead to unease among salaried individuals, especially at a time when the government is pursuing policies perceived as favorable to retailers. Additionally, changes such as lowering the taxable limit and removing tax slabs could disproportionately impact middle and upper-middle-income groups.
The IMF’s analysis highlights that tax collection in Pakistan is primarily concentrated in Punjab and Sindh provinces, with individuals contributing the largest share of income tax revenue. The current income tax rate structure is deemed problematic, with marginal income tax rates being largely progressive but only applied to certain types of income, leading to disparities between taxpayers earning different income types.
