The government is working on reducing the brackets of salary income tax to five from existing 11, besides reducing the income slabs, according to a country report on Pakistan issued by International Monetary Fund (IMF).
Pakistan has assured the IMF to take major initiatives in the upcoming budget 2021-22. According to the report the Pakistani authorities assured the IMF that in the next step of tax policy reform efforts and to further support fiscal objectives, the government will introduce both a general sales tax (GST) and a personal income tax (PIT) reform with the FY 2022 budget, yielding an estimated 1.1 percent of GDP.
The government may introduce change to the existing tax rate structure by reducing the number of rates and income tax brackets from eleven to five and decreasing the size of the income slabs, with a view to simplifying the system and increasing progressivity.
The authorities further pledged to reduce tax credits and allowances by 50 percent (except for Zakat and those provided for disabled and senior citizens).
Besides, they also pledged to introduce a special tax procedure for very small taxpayers, aimed at preventing further tax base erosion and facilitating the formalisation of the economy.
For the broadening and harmonizing the General Sales Tax (GST) base, the authorities assured the IMF through its Letter of Intent (LoI) signed by the finance minister and governor State Bank of Pakistan (SBP) that the government will advance the reforms to our GST system, underpinned by a unified tax base and within the confines of the current constitution. The authorities pledged to eliminate all zero-rated goods (Fifth Schedule), except on export and capital machinery goods and move them to the standard sales tax rate, and to remove reduced rates under the Eight Schedule and bring all those goods to the standard sales tax rate.
The authorities have also pledged to eliminate exemptions (Sixth Schedule) excluding a small subset of goods (i.e. basic food, medicines, live animals for human consumption, education and health-related goods) and bring all others to the standard rate; and to remove the Ninth Schedule to replace a specific tax rate for cell phones with the standard rate. These reforms are expected to yield an estimated 0.7 percent of GDP on an annualized basis.
Meanwhile, the IMF in its report said that revenue collection of the Federal Board of Revenue (FBR) has been projected at Rs4,691 billion for the current fiscal year against the actual target of Rs4,963 billion. The International Monetary Fund (IMF) in its country report on Pakistan projected that the collection of the FBR may fall short of Rs272 billion against the actual target of the fiscal year 2020-21. However, the Federal Board of Revenue (FBR) has collected nearly Rs3.4 trillion in taxes in nine months, exceeding its revised target. The FBR said that the nine-month collection was Rs106 billion more than its target of around Rs3.3 trillion. However, the Rs3.3 trillion target is on the basis of downward revised annual target of Rs4.7 trillion. However, the IMF projected better growth in revenue collection in coming years. It projected Rs5,963 billion for fiscal year 2021-22 and Rs6,941 billion for the fiscal year 2022-23.