Pakistan on Monday informed the International Monetary Fund (IMF) that it plans to raise wages by 10% in addition to a disparity allowance and has set a tax target of 5.8 trillion rupees for the next one. exercise.

The government has also proposed to levy 350 billion rupees in additional taxes from the budget, including 81 billion rupees of measures that have already been implemented under a mini-budget. The 350 billion rupees in additional revenue measures are almost half of what former finance minister Dr Abdul Hafeez Shaikh agreed with the IMF in March this year.

The government also proposed an economic growth rate target of 5.2 percent for the next fiscal year during first-level technical interaction with IMF staff, finance ministry sources said. The IMF would now review those numbers and give its response in the coming days if it was prepared to accept those numbers, the sources said.

The non-tax revenue target will be around Rs 2 trillion, to be met based on approximately Rs 650 billion of profit by the State Bank of Pakistan (SBP) and Rs 650-700 billion. under the oil royalty, the sources said. Finance ministry officials said they plan to maintain the 25% disparity allowance over the next fiscal year, which they granted a few months ago to end employee protests. In addition to the disparity allowance, the government can grant a minimum 10% increase in wages and pensions to civilian and military employees, the sources said.

The finance ministry suggested an economic growth target of 5.2 percent for the next fiscal year after the National Accounts Committee approved a growth figure of 3.94 percent for the outgoing fiscal year. Inflation is expected to be around 8% over the next fiscal year.

Sources said the government had proposed a fiscal target of 5.8 trillion rupees for the next fiscal year, about 163 billion rupees less than the IMF had suggested. This year, the collection is expected to amount to 4.7 trillion rupees.

To achieve this goal, the government has proposed 350 billion rupees in tax measures, including 81 billion rupees in taxes it imposed from March through a presidential ordinance, which will be protected in the next budget.

The income tax measures will be around Rs 100 billion with new personal income tax measures of only Rs 20 billion. Sources said the government has informed the IMF that it will not impose any significant burden on the wage class except on the highest income brackets.

But he stands ready to reduce the number of income tax slabs, the sources said. They said the net impact on the working class could be Rs5 billion compared to the previous proposal of Rs24 billion. There could be Rs 190 billion in sales tax measures in the budget, which is also half of what Pakistan pledged when the $ 6 billion program relaunched. Sources said the government could take Rs 60 billion in customs measures in the next budget.

There will still be a gap of around Rs 200 billion between the revenue target and the measures proposed to achieve it, which sources say the government is trying to cover with administrative measures such as the introduction of retailers in the tax net and the introduction of a tracking and tracing system to reduce taxes. evasion.

There are 100 million mobile users who pay an adjustable tax of 12.5% ​​and three million retailers pay a non-adjustable sales tax and up to Rs 43,500 in income tax. But the RBF remains unable to capture this potential. It also has a record of eight million people paying a huge withholding tax. But this information was never translated into income.

Finance Minister Shaukat Tarin on Monday hinted at lowering the minimum tax rate in the budget, which the Pakistani business sector called flawed and a barrier to entry for new businesses.

Tarin has pledged to explore the possibility of lowering the minimum income tax from its current rate of 1.5% starting in fiscal year 2021-2022 in a meeting with representatives of large companies in the country, have indicated sources of the Ministry of Finance.

Tarin held a consultative meeting with senior representatives of Pakistan Business Council, Pak-US Business Council and Overseas Investment Trade and Industry Chamber (OICCI).

The Pakistan Business Council said the minimum tax rate of 1.5% was extremely high and unrealistic, based on a company’s turnover rather than its profits.

The PBC called this mechanism flawed and a barrier to entry for new players because it increases the initial investment required to cover taxes payable in the first years of losses. The dependence of RBF on minimum, withholding and withholding taxes has increased sharply, as it is an easier way than to assess taxable profits, according to the PBC.

The big firms in particular want the tax on the turnover of oil companies to be drastically reduced to only 0.11%.

The Pakistan Business Council has said the minimum tax rate of 1.5% is extremely high and unrealistic because it is based on a company’s turnover rather than its profits.

The business sector has also called on the government to lower the turnover tax imposed on operators of special economic zones.

However, the finance minister refused to restore Articles 65D and 65E, which were tied to tax incentives on new investments, but were withdrawn through a mini-budget a few months ago, the officials said. sources.

Under Articles 65D and 65E, there was an exemption for five years from all income taxes, including minimum tax and final tax, for companies incorporated for the operation of a new industrial enterprise. .

The tax credit under section 65B, which was available to industrial companies, was withdrawn prematurely, while the tax credits under section 65D and 65E will expire on June 30, 2021. In order to encourage companies to invest in plant and machinery, either for import substitution or for export growth, all investment tax credits should be immediately revived.

Posted in The Express Tribune, May 25e, 2021.

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