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IMF Asks Pakistan for Changes in Personal Income Tax

The International Monetary Fund (IMF) has reiterated the changes in personal income tax in Pakistan amid the economic downturn and political differences in the country. Recently, a meeting was held between the tax officials of Pakistan and the international lender where the issue was raised about the reforms in the personal income tax to raise maximum revenue, the Dawn newspaper reported.

It was told that the government faced the same demand last year from IMF but it was not accepted by the governing officials. These demands are part of the seventh review of the USD 6 billion of the Fund Extended Fund Facility. In the wake of the sixth review, the government withdrew tax exemptions worth Rs 343 billion as against the IMF demand of Pakistani Rupees 700 billion.

The meeting between IMF and Tax Officials was all about the changes in the Personal Income Tax where IMF demanded to reduce the salary income tax slabs from the existing 12 to 6 with an increase in rates. The demand is one of the conditions for consideration in the next budget. Not only this but it was also proposed to bring reforms to Provident Fund and other allowances for taxations.

According to one of the proposals, the burden of tax payment would be decreased on the low-income ceiling earning PKR 600,000 per annum, while tax incidence would be increased on those who are earning over PKR 300,000 per month basis, it was reported by the Dawn newspaper on 23rd March.

Pakistan has already held out an assurance to the fund to make legislation about PIT before the budget to ensure that it will be ready to come into effect from July 1. The new budget will reduce the number of rates and income tax brackets and will also reduce tax credits and allowances (excluding disabled and senior citizens, and Zakat receipts).

The different sources reported the government has already committed to making the legislation by the end of February. A source said “We are committed to reforming our PIT“; the reforms include changing the existing tax rate structure by reducing the number of rates and income tax brackets to simplify the PIT system.

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