The latest round of talks between Pakistan and the International Monetary Fund (IMF) ended without an agreement on a new bailout package as both sides failed to find common ground on higher income tax rates for salaried/non-salaried class and an 18 percent sales tax on agriculture and health sectors.
The key issue is whether to impose a 45 percent income tax on monthly salaries of over Rs. 467,000, a significant increase from the current maximum rate of 35 percent on incomes over Rs. 500,000, reported Express Tribune.
Both parties agreed on increasing the tax burden on exporters, who paid Rs. 86 billion this year, far less than the taxes paid by salaried individuals. Pakistan also showed a willingness to tax pensions beyond a certain threshold.
Differences remain on the income tax threshold, the merger of tax rates for salaried and non-salaried individuals, and the maximum income tax rate. The IMF proposed merging the tax slabs for different income sources, but the government prefers to keep salaried and non-salaried slabs separate.
Proposed changes include increasing the taxable income threshold to Rs. 900,000 per year, with new rates of up to 7.5 percent for monthly incomes of Rs. 100,000 and 20 percent for incomes up to Rs. 133,000.
For higher incomes, a proposed 30 percent rate would apply to monthly incomes of Rs. 267,000, and 40 percent for incomes up to Rs. 466,000. The highest rate of 45 percent would apply to incomes over Rs. 467,000, up from the current 35 percent on incomes over Rs. 500,000. If accepted, the new rates could increase the salaried class’s tax contribution to Rs. 540 billion next fiscal year, up from Rs. 360 billion.
The IMF also asked Pakistan to propose alternatives if it was unwilling to increase the tax burden on the salaried class. Another round of discussions is expected soon.
The IMF urged Pakistan to end special tax regimes, including low taxes on stock market gains and bank deposits.
There was no consensus on imposing an 18 percent sales tax on essential agricultural inputs and medical supplies.
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