The International Monetary Fund (IMF) wants Pakistan to reduce the number of tax slabs for salaried and business-class workers from 7 to 4 and more than double tax collection from business individuals and salaried individuals.
The proposal was made by the lender’s technical mission that finished its two-week study of Pakistan’s tax policies last week. The mission also proposed raising the sales tax rates to 18 percent.
The IMF visiting team shared its findings with the federal government before departing, while its draft report will be released soon.
Tax officials appear hesitant to embrace the IMF’s advice since the salaried class is already heavily taxed.
The IMF suggested reducing the number of tax brackets from seven to four. Currently, the salaried class income tax rates range from 2.5 percent to 35 percent, depending on the annual income. If the slabs are lowered to four, the tax burden will grow drastically for the low-middle income groups.
People earning Rs. 200,000-300,000 per month are currently paying the highest tax. If two to three tax slabs are eliminated, the tax rates for persons earning Rs. 200,000-300,000 will skyrocket. Notably, unsalaried individuals and retailers make up a sizable tax base that is not subject to income tax.
The IMF also proposed that Pakistan discontinue the favorable sales tax rates imposed under the 8th Schedule of the Sales Tax Act, a move that would restore sales tax on hundreds of items to the regular 18 percent.
