ISLAMABAD: The government is reviewing the new slabs announced for personal income tax (PIT) to bring them in line with the demands of the International Monetary Fund (IMF), the chairman of the Federal Board of Revenue (FBR), Asim Ahmad, said on Tuesday.
According to a report, Ahmad saw it as quite the predicament given the narrow tax base which makes it difficult to raise the rate from 35% to 70% for higher income slabs.
Most of the taxpayers were excluded from initial slabs and the government wanted to protect the monthly income earner of Rs200,000.
“It is a difficult situation and different options are under consideration for jacking up rates of income slabs beyond income earner of Rs200,000 per month as this step could reduce the relief from the existing Rs47 billion proposed through the budget,” the FBR chairman FBR said, while talking to reporters outside the Senate Standing Committee on Finance meeting at the Parliament House where a meeting to finalise recommendations for budget 2022-23 was held.
The government is considering keeping low rates for 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 to consumers 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 to abolish subsidies.
On the tax revenue side, the IMF wants major changes in PIT as the Fund raised the objection that the FBR moved differently from what was agreed on the occasion of the completion of the 6th review under the $6 billion Extended Fund Facility (EFF). The IMF has placed PIT reforms as a structural benchmark and Pakistan made a commitment to share the roadmap for implementing PIT reforms with the IMF by the end of February, with the decision to implement it in budget 2022-23 with effect from July 1.
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. Furthermore, the IMF considers the petroleum levy an over-ambitious target which must be be rationalised 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 a revised projection of Rs130 billion for the outgoing fiscal year. The government proposed jacking up the limit of petroleum levy from Rs30 to Rs50 per litre.
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 the fiscal side.
The power sector losses, exact subsidies, the monster of circular debt and capacity repayments are also problematic areas. The Fund also requires more details on Chinese IPPs repayments. The News contacted Dr Khaqan Najeeb, former adviser to the 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 said that the PIT reforms should be clear in providing relief to the 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 of seven from 11.
