ISLAMABAD: The government is contemplating the withdrawal of tax concessions that disproportionately benefit high-earning individuals, a proposal likely to impact the wealthy while sparing the middle class, Dawn learned on Monday.
The International Monetary Fund (IMF) has suggested that the government treat salaried employees’ incomes similarly to non-salaried individuals’ incomes as personal income. However, the Federal Board of Revenue (FBR) disagrees, arguing that these income sources cannot be equated.
If the IMF’s recommendation is implemented, the tax burden on the salaried class will increase significantly. Currently, the devised revenue measures total Rs500 billion for the 2024-25 budget, though the final figure will depend on the IMF’s revenue collection target projections. Unlike previous years, the Ministry of Finance, rather than the FBR, is handling the tax recommendations computations.
FBR forecasts that autonomous revenue collection, driven by GDP growth and inflation, will exceed Rs1,150 trillion in FY25. Revenue measures, totaling Rs415 billion in the previous budget, are set to rise. The FBR has proposed raising the tax exemption limit for the salaried class to Rs1.2 million for 2024-25 but may adjust this to Rs900,000 from the current Rs600,000 due to inflation.
Discussions with the IMF also include pension taxation, aiming to match pensioners’ income to salary slabs. While the FBR focuses on federal employees’ pensions, estimated at Rs700 billion, they have proposed alternative mechanisms for taxing wealthier pensioners. Private sector pensions, provided by large companies, are also under review.
The FBR is considering eliminating various tax exemptions following consultations with the IMF. The IMF has urged the FBR to tax traders and wholesalers, currently not contributing to tax collection. Despite no agreement on increasing import tariffs, the IMF’s primary focus remains on sales and income taxes, particularly withholding taxes. The government faces challenging decisions regarding sales tax exemptions, which currently exceed Rs1.2 trillion, especially for essential items like food, pharmaceuticals, and solar panels.
Additionally, the government plans to increase existing withholding tax rates and introduce new ones, such as reviving the tax on cash withdrawals from banks. The finance ministry is also considering taxing previously exempted raw materials and raising rates on existing ones, a move the PTI government previously avoided to boost exports and industrialisation.
Story by Mubarak Zeb Khan
