Disagreement on four crucial topics has hampered the effective conclusion of Pakistan and the International Monetary Fund (IMF) ongoing seventh review meeting.
According to sources, the main issues delaying the effective end of the 7th review, which began on March 4, 2022, are an increase in income tax rates, a tax on retirees, a tax amnesty for the industrial sector, and the PM Relief package on energy and gasoline.
According to sources, the Pakistani side, led by Finance Minister Shaukat Tarin, was unable to persuade the IMF staff on two critical issues: the PM Relief Package and the tax amnesty scheme.
The PTI government has reached a point of no return on the PM Relief package, since it cannot reverse it due to political ramifications.
The administration also opposes the IMF’s recommendation to raise income tax rates, which would be a very punitive decision.
According to the sources, the IMF proposed a 5% tax on persons earning between Rs. 50,000 and Rs. 62,500 per month.
Currently, the government levies a 5% tax on income up to Rs. 100,000 per month. The IMF has proposed a 10% income tax rate for those with a monthly income of up to Rs. 79,000.
Currently, the government charges this rate exclusively on those earning up to Rs. 150,000 per month.
According to sources, the IMF has also proposed a 20% income tax on monthly earnings of up to Rs. 104,000. Individuals earning nearly Rs. 417,000 are currently subject to a 20% tax rate.
According to the sources, the IMF’s most harsh proposal was to impose a single 30 percent tax rate on those with monthly incomes ranging from Rs. 104,000 to Rs. 1 million.
Those earning up to Rs. 4.17 million per month are currently subject to a 30% tax rate.
Pakistan has yet to embrace the IMF proposal due to its negative political, economic, and social implications. In comparison to these rates, the government has suggested a 10% income tax for persons earning up to Rs. 100,000 per month, according to sources.
The FBR has proposed a 15% income tax for persons earning between Rs. 100,000 and Rs. 333,000 per month.
The FBR has proposed a 20 percent tax rate for persons earning up to Rs. 666,000. According to the FBR, the tax rate for those earning up to Rs. 1.25 million per month should be 30%.
It has proposed a 32.5 percent tax rate for people earning less than Rs. 2.5 million per month and a 35 percent tax rate for those earning more than Rs. 2.5 million per month.
Currently, people earning more than Rs. 6.25 million per month are subject to a 35% tax. According to sources, in addition to the debate over salaried class taxation, both sides were unable to reach an agreement on the subject of taxing pensioners.
The IMF also insists that pensions be taxed, either at the time of contribution or at the time of withdrawal.
Contrary to this, the Ministry of Finance is claiming that “negotiations under the seventh review are continuing as planned and the two sides remain engaged on a regular basis at a technical level through virtual meetings and data sharing.”
The vote of no-confidence in parliament is another reason for the negotiations to be slowed, because if the premier loses the majority, the Fund will have to wait for the new administration.
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