IMF has urged Pakistan to cut the number of tax slabs for the salaried and business class from the existing seven to four – a proposal, if accepted, will hurt the middle and upper middle-income groups.
Last week, the IMF took up the issue aimed at more than doubling tax collection from business individuals and salaried persons, government sources told The Republic Policy.
The proposal was floated by a technical mission of the IMF that completed its two-week review of Pakistan’s tax policies last week. The mission also recommended increasing the existing reduced sales tax rates to the standard 18%, except for some essential goods, the sources added.
They said that the IMF had yet to give its recommendations in a report, but the visiting mission did share its findings with the federal government before departing. The IMF is expected to share its draft report soon. Its recommendation has yet to be binding. IMF Resident Representative Esther Perez has yet to respond to a query regarding the request of the technical mission to reduce the number of personal income tax slabs.
There seems to be reluctance on the part of tax authorities to accept the IMF’s recommendation, as the salaried class is already buried under heavy taxation. The IMF has also said in the recent past to increase the tax contribution from the agriculture and real estate sectors.
Sources said that the IMF recommended reducing the number of tax slabs from seven to four. The salaried class income tax rates range from the low of 2.5% to the high of 35%, depending on the annual income.
If the slabs are reduced from seven to four, the tax burden will increase for the people falling in the lower and middle slabs, who will see a sharp increase in their tax rates.
