IMF urges RBF to raise income tax and GST
- FBR will recover 7.2 trillion rupees in taxes for the next budget as dictated by IMF.
- The board proposes a tax collection target within a range of Rs 6.9 trillion.
- Income tax reforms aim to increase progressivity.
ISLAMABAD: The Federal Board of Revenue (FBR) has been asked to recover 7.2 trillion rupees in taxes for the next budget by the International Monetary Fund (IMF), with a target on personal income tax ( PIT) and the harmonization of the general sales tax (TPS), The news reported Friday.
A senior official source confirmed the reports saying that discussions are ongoing with the FBR increasing the tax collection target by Rs 6.9 trillion. However, the IMF has urged extending the Council’s tax collection range up to Rs 7.2 trillion in the 2022-23 budget.
Meanwhile, FBR Chairman Asim Ahmed said work in this regard is still ongoing. With the implementation of the Fund’s dictate, Pakistan’s overall tax revenue would increase to Rs 7.2 trillion for the next budget from revised estimates of Rs 5.9-6 trillion for the current fiscal year.
The government was also struggling to meet the non-tax revenue target for the outgoing fiscal year as the State Bank of Pakistan (SBP) failed to deliver its quarterly profit of an estimated $200 billion. rupees to the Ministry of Finance after the enactment of the new SBP Amendment Act 2022. This amount could be provided in the next fiscal year, but it was difficult for the SBP to provide it before June 30, 2022.
The PIT would be reformed in depth, so that the taxable ceiling would probably be raised from the current level of 0.6 million to Rs1-1.2 million, while the number of slabs would be reduced from 13 to six. The IMF has also proposed to significantly increase tax rates.
Former Finance Minister Dr. Hafiz A Pasha said the taxable ceiling should be increased from 0.6 million rupees to 1.2 million rupees in the next budget, but the number of slabs should be considerably increased. reduced. He said the top tax rate was imposed on the annual income ceiling of Rs 5 million per year which was 300% higher than the per capita income in Pakistan. He proposed that a full tax rate be imposed on those earning 20 million rupees or more on an annual basis.
He also proposed that the duration and rate of capital gains on stocks be reviewed and adjusted to collect more taxes.
The reforms of the PIT aim to simplify the system, increase progressivity and support the formalization of work. This would both reduce the number of income tax rates and brackets, reduce tax credits and allowances (except those for the disabled and the elderly, and Zakat receipts ), would introduce special tax procedures for very small taxpayers and bring additional taxpayers into the tax net. Low-income households would remain protected because the reform preserves the current PPI threshold (nearly three times per capita income).
The government is committed to reforming the personal income tax to change the structure of tax rates by reducing the number of tax rates and tax brackets (slabs). It would also reduce expenses and tax allowances. These PIT reforms would generate about 0.3% of GDP in revenue gains in fiscal year 2024.