Miftah says IMF deal expected within days, confirms partial rollback of tax relief
If the middle class had anything to celebrate in the federal budget proposals for the next fiscal year 2022-23, it was the tax relief offered to the salaries class earning less than Rs100,000 per month. But the federal government has now decided to reverse the measure under sustained pressure from the International Monetary Fund, SAMAA TV reported on Monday.
Federal Finance Minister Miftah Ismail confirmed the partial rollback of the measure but said that the exemption for people earning up to Rs100,000 per month or Rs1.2 million per annum would not be withdrawn.
The Finance minister also said that a deal between the IMF and Pakistan is expected within ‘a day or two.’
Rollback of personal income tax relief
Federal Board of Revenue (FBR) Officials told SAMAA TV’s Shakeel Ahmed that the government is preparing to amend the draft budget proposals to meet the demands set by the IMF, which has not yet approved the next loan tranche for Pakistan, and talks for the revival of $6 billion loan program have stalled for two months.
The federal government had lowered the number of tax slabs from twelve to seven and allowed a relief of Rs47 billion to the salaried person, but the IMF has expressed concerns over the budgetary measure.
The Fund has instead urged the government to increase its tax collection from the salaried person by Rs125 billion.
The IMF would not revive its program for Pakistan until the relief granted to salaries persons is reversed, said Shakeel Ahmed.
What the reversal means for middle-income groups
Under the existing tax slabs, monthly income below Rs50,000 is not taxed, while monthly income between Rs50,000 and Rs66,666 is taxed at the rate of 5%.
Annual income between Rs800,000 and Rs1,200,000 is taxed in the following manner. Rs. 10,000 + 12.5% of the amount exceeding Rs800,000.
Under the budget proposals for the fiscal year 2022-23, the federal government had granted tax exemption to people earning up to Rs1,200,000 per annum or Rs100,000 per month.
Under the existing rates, people earning between Rs100,000 and Rs200,000 are taxed as follows: Rs60,000 + 17.5% of the amount exceeding Rs1,200,000. If the government had approved the budget without any changes, they would have been paying 7% tax on of the amount exceeding Rs1,200,000.
The budget relief could have saved these middle-income groups between Rs1,500 and Rs15,000 per month amid rising inflation and increasing fuel costs.
Out of 1.8 million salaried individuals, at least 1.2 million have been filing tax returns and paying Rs220 billion in taxes.
The IMF wants the government to increase tax collection to Rs345 billion.
Speaking to reporters in Islamabad Monday afternoon, Miftah Ismail said that the IMF had nothing to do with the increment in salaries and that the government would offer relief to the poor while the affluent will be taxed.
He said the personal income tax exemption for people earning up to Rs1.2 million per annum will not be withdrawn.
The minister said that the IMF program would be revived within a few days.
The finance minister also attended the meeting of the Senate Standing Committee on Finance and said that a 15% tax on real estate would not apply if the owner takes possession and starts construction, but if the land is left empty the new tax would be levied.
Reforms agreed by previous govt
State Minister for Finance Dr Aisha Ghaus Pasha told the Senate Standing Committee on Finance on Monday that the previous government had agreed with the IMF to implement personal income tax reforms and other measures and had signed an agreement. The current government is merely completing the business, she said.
The minister said that the previous government also agreed to implement measures to slap the petroleum development levy on petroleum products and increase power tariffs.
Pasha said that the current government was not going beyond implementing the deal signed by the previous government with the IMF.
The panel members urged the government to negotiate a better deal with the Fund.
PPP’s Senator Farooq H Naik said that the government should implement legitimate reforms proposed by the IMF but should never give in to excessive demands.
Finance ministry officials say that the government was close to signing a deal with the Fund and will conclude an agreement as soon as it receives the Memorandum of Economic and Financial Policies documents.