Islamabad: Acknowledging the International Monetary Fund’s (IMF) demand, the government has imposed a burden of Rs 80 billion on the salaried class by increasing the tax rate and withdrawing the relief announced barely three weeks ago.
The proposed amendments to the Finance Bill 2022 set a minimum income tax rate of 2.5 per cent for those earning up to Rs 100,000 per month and a maximum of 35 per cent for monthly income above Rs 1 million.
The coalition government has reversed its earlier two decisions to exempt those earning Rs 100,000 a month from income tax. And after the IMF refused to comply with its demand, it withdrew its move to reduce the maximum income tax rate from 35% to 32.5%.
On June 10, Finance Minister Muftah Ismail announced an income tax relief of Rs 47 billion for the salaried class.
The coalition government has not only withdrawn the relief. Still, it has also imposed a net additional tax of Rs 33 billion on the salaried class compared to June 2021, which has put a burden of Rs 80 billion on them.
The IMF had proposed a tax on the upper-middle and wealthy income groups, who earn between Rs 104,000 and Rs 1 million monthly at a rate of 30 per cent, which the government did not accept.
The new rates are still lower than the initial demand made by the IMF to the previous PTI government.
The IMF had demanded an unjustified rate of 30 per cent from those earning Rs 100,000 to Rs 1 million per month to receive an additional Rs 125 billion from the salaried class.
“We tried to get maximum concessions from the IMF for the salaried class, but it did not fully accept our position,” Muftah told the Express Tribune. He added that the net surplus on the salaried class was Rs. 33 billion per annum.
About 1.24 million salaried people have submitted income tax returns for the tax year 2021. Of these, 333,000 are in the income tax exemption slab of Rs. 50,000 per month. This slab is still an exception.
The government has proposed a 2.5 per cent income tax on monthly incomes up to Rs 100,000, compared to the zero tax proposed on June 10.
The government has proposed an income tax rate of 12.5 per cent for those earning up to Rs 200,000 per month, which is 78 per cent higher than the one proposed on June 10. Monthly income of Rs. 200,000.
For the outgoing financial year, salaried individuals were paying 10 per cent on a monthly income of Rs 150,000 and 15 per cent on a monthly income of up to Rs 208,000.
For the fourth slab carrying people with a monthly income of up to Rs 300,000, the government has now set a 20% income tax rate, proposed on June 10, 12.5% - compared to the three-week-old rate. The additional load of 60%. The current tax rate for this income group was 17.5%.
The burden of Rs 80 billion fell on the salaried class.
Last month, inflation in Pakistan stood at 13.8 per cent, which is expected to rise due to various tax measures such as the Rs 50 per litre petroleum levy.
On a monthly income of Rs 500,000 – the fifth slab – the government has proposed an income tax of 25% against the three-week-old rate of 17.5%.
For those earning more than Rs 1 million a month, the government has proposed a rate of 32.5 per cent, up from 22.5 per cent three weeks ago. For the outgoing fiscal year, the tax rate for this slab was 25%. However, the IMF had earlier proposed a 35% rate for them.
There are more than 6,000 people here, earning up to Rs 1 million a month.
For those earning more than Rs 1 million a month, the government has proposed an income tax rate of 35 per cent, up from 32.5 per cent three weeks ago. The finance minister said there were barely 12,000 people in the country who had declared a monthly income of more than Rs 1 million.
Those earning Rs 1 million to Rs 2.5 million a month are paying 27.5 per cent income tax.
The revised tax rate for the salaried class is expected to bring Pakistan and the IMF closer together.
However, the IMF has not yet shared the draft Memorandum of Economic and Monetary Policy (MEFP).
The government is expected to receive the MEFP document on Friday or Monday.
Last month, inflation in Pakistan stood at 13.8%, which is expected to spiral due to many taxation measures like the Rs50 per litre petroleum levy.