The International Monetary Fund (IMF) has asked Pakistan to impose income taxes worth around Rs225 billion and has raised questions about sustainability of revenue performance due to policy change to curb imports.
According to reports, IMF wants to reduce the number of income tax slabs and withdraw income tax exemptions under the second schedule of the Income Tax Ordinance which also includes pensioners.
It is also being reported that the IMF has asked for withdrawal of sales tax exemptions to those whose revenue impact is in addition to Rs225 billion.
A final decision on these demands will be taken during the policy level talks with the IMF set to begin in Washington on October 13.
Pakistan and the IMF have been engaged in technical talks over the last four days during which the IMF has pressed Pakistan to increase the electricity prices with annual and quarterly adjustments in tariffs. IMF believes that the measures taken to contain circular debt are insufficient.
It is being reported that the IMF asked Pakistan to increase the personal income tax rates for salaried individuals by scaling down the numbers of tax slabs and also urged the authorities to withdraw the sales tax exemptions. Majority of the salaried individuals were paying taxes, which according to the IMF were below their income levels.
Under a commitment made by Pakistan in April, the government was to reduce the number of income tax slabs to around five and rationalise the income tax rates for salaried and business individuals from July this year.
However, Finance Minister Shaukat Tarin had refused to accept this demand. But is being reported that the IMF was not convinced with the quality of the FBR tax collection and doubted that the healthy trend would continue due to curbing the imports.
It was projected that despite reducing imports, Pakistan’s annual import bill would be around $72 billion. The IMF believes the curbs might reduce the bill to $60 billion.
The IMF technical level talks will conclude on Friday (today) and the outstanding issues will now be decided during Finance Minister Shaukat Tarin visit to Washington, where policy-level talks will be conducted between October 13 to 15.
Tarin will leave Pakistan on Monday as finance minister but when he will return on October 24 his status will be reduced to adviser on finance, because the government could not get him elected senator within six months constitutional term.