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Friday May 27 2022
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IMF urges FBR to jack up income tax, GST

FBR office. — APP
FBR office. — APP

  • FBR to fetch Rs7.2 trillion in taxes for upcoming budget as per IMF diktat.
  • Board pitches tax collection target in Rs6.9 trillion range.
  • Income tax reforms aim to increasing progressivity.


ISLAMABAD: The Federal Board of Revenue (FBR) has been asked to fetch Rs7.2 trillion in taxes for the upcoming budget by the International Monetary Fund (IMF), with a target on personal income tax (PIT) and harmonisation of general sales tax (GST), The News reported Friday.

A top official source confirmed the reports by saying that discussions are underway, with the FBR pitching up the tax collection target in the range of Rs6.9 trillion. However, IMF urged extending the range of the Board's tax collection up to Rs7.2 trillion in the 2022-23 budget.

Meanwhile, FBR Chairman Asim Ahmed said that work in this regard was still underway. With the implementation of the Fund's diktat, Pakistan's overall tax collection would swell to Rs7.2 trillion for the next budget against revised estimates of Rs5.9 to Rs6 trillion for the current fiscal year.

The government was also facing difficulty in materialising the non-tax revenue target for the outgoing fiscal year, as the State Bank of Pakistan (SBP) did not provide its quarterly profit of an estimated Rs200 billion to the Ministry of Finance after enactment of the new SBP Amendment Act 2022. This amount might be provided in the next fiscal year, but it was difficult for the SBP to give it before June 30, 2022.

PIT would be reformed in a big way, whereby the taxable ceiling would likely be jacked up from the existing level of 0.6 million to Rs1-1.2 million, while the number of slabs would be reduced from 13 to six. The IMF also proposed to increase tax rates substantially.

Former Finance Minister Dr Hafiz A Pasha said that the taxable ceiling limit should be increased from Rs0.6 million to Rs1.2 million in the next budget, but the number of slabs should be reduced substantially. He said maximum tax rate was imposed on the annual income ceiling of Rs 5 million per annum, which was 300% higher than per capita income in Pakistan. He proposed that a full tax rate should be imposed on those who earned Rs20 million or more on an annual basis.

He also proposed that the tenure and rate of capital gains on stock shares should be reviewed and adjusted to collect more taxes.

The reforms in PIT aim to simplify the system, increasing progressivity, and supporting labour formalisation. It would reduce both the number of rates and income tax brackets, reduce tax credits and allowances (except those for disabled and senior citizens, and Zakat receipts), introduce special tax procedures for very small taxpayers, and bring additional taxpayers into the tax net. Low-income households would remain protected as the reform preserves the current PIT threshold (almost three times income per capita).

The government committed to reforming PIT to change the existing tax rate structure by reducing the number of rates and income tax brackets (slabs). It would also reduce tax expenditures and allowances. These PIT reforms would yield an estimated 0.3% of GDP in revenue gains in FY 2024.