International Monetary Fund asks Pakistan to hike income tax

The IMF plan seeks to reduce the number of income tax slabs and withdraw income tax exemptions currently given under the second schedule of the Income Tax Ordinance that also include pensioners, the report said. 

The Fund has also asked for withdrawal of sales tax exemptions to those whose revenue impact is in addition to 225 billion PKR, the sources said, adding that the final decision to accept or reject the demands would be taken during the policy level talks with the IMF set to begin in Washington on October 13. 

During four days of the technical talks, the IMF has pressed Pakistan hard to increase the electricity prices on account of annual and quarterly adjustments in tariffs, as it termed the measures to contain circular debt insufficient, the report said. 

The demand for increasing taxes was surprising, particularly after the FBR exceeded its first quarter tax collection target by a margin of 187 billion PKR, which has positioned it to achieve the annual target of 5.829 trillion PKR. 

The report said the IMF has asked Pakistan to increase the personal income tax rates for the salaried and 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, the sources said. 

According to a commitment by Pakistan given in April, the government was supposed 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, Pakistan Finance Minister Shaukat Tarin had then refused to accept this demand. 

The sources said 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.