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IMF Urges Pakistan to Increase Tax Burden on Salaried Class

The International Monetary Fund (IMF) has recommended a significant revamp of Pakistan’s tax system, urging the country to streamline its current structure. Among the proposals is a reduction in the number of tax slabs for both salaried and business-class individuals from the existing seven to just four. Additionally, the IMF is pushing for a substantial increase in tax collections from both business and salaried individuals, effectively doubling the current rates.

This recommendation follows a thorough two-week study conducted by the IMF’s technical mission, which concluded last week. As reported by the Express Tribune, the mission also advocates for an elevation of sales tax rates to 18 percent. Although the IMF team shared its findings with the federal government before departing, the official draft report is expected to be released soon.

Despite the IMF’s suggestions, tax officials in Pakistan are displaying hesitancy, citing the already burdensome tax obligations faced by the salaried class. Currently, income tax rates for salaried individuals span from 2.5 percent to 35 percent based on annual income.

The IMF’s proposed overhaul includes reducing the existing seven tax brackets to just four. While intended to simplify the system, this move could potentially escalate the tax burden for those in the low to middle-income groups. Individuals earning between Rs.200,000 and 300,000 per month currently face the highest tax rates, and the elimination of two to three tax slabs could lead to a substantial increase in their tax liabilities.

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Of note, a significant portion of the tax base comprises unsalaried individuals and retailers who are presently exempt from income tax. The IMF’s recommendations also extend to discontinuing the favorable sales tax rates outlined in the 8th Schedule of the Sales Tax Act. This proposed change would revert sales tax on hundreds of items to the regular 18 percent rate.

As the Pakistani government considers these proposals, discussions over the potential impact on various income groups and the overall economy are likely to intensify. The balancing act between meeting IMF recommendations and addressing concerns about increased tax burdens will be a key focal point in the ongoing debate.


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