Pak is contemplating introducing an income tax on pensions

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Islamabad [Pakistan]May 21 (ANI): Funded Pakistani government is considering introducing an income tax on monthly pensions to offset heavy tax losses of Rs 1.4 trillion, amid pressure from the International Monetary Fund (IMF) to reconsider tax law .

The fine-tuning of the tax proposals will be carried out ahead of a meeting with the IMF, which will begin reviewing the government’s budget proposals for fiscal year 2021-22 from next week. The Express Tribune cites sources from the Pakistani Treasury Department.

One of the proposals is to limit the income tax-free pensions retired officials, judges and generals receive to informed sources.

They also said that the Finance Minister’s special assistant, Dr. Waqar Masood wanted the annual taxable pension limit set at 5 million rupees, or 416,000 rupees per month, with the exception of all class 22 retired bureaucrats. He also proposed a 10 percent tax on retirees.

According to tax spending reports for the year 2019-20, the Pakistani federal government suffered a loss of around 21 billion rupees due to tax-free pensions.

The main loss of Rs 18.7 billion resulted from the conversion of employee pensions and an additional Rs 21 million from tax-free monthly payments from the income payment plan invested with a pension fund manager. Sources said the annual cost of tax losses peaked at nearly Rs 1.4 trillion, The Express Tribune reported.

The IMF urges Pakistan to reconsider its tax laws to end such benefits as they are largely used by the wealthy class. Much of the tax losses, however, were borne by sales tax exemptions, which are likely to hurt the poor segment more directly than the rich class.

The IMF signed an agreement with Pakistan in March, according to which the latter must take additional tax measures amounting to 1.2 percent of gross domestic product (GDP) or 570 billion rupees. However, Treasury Secretary Shaukat Tarin has shown reservations about the plan.

The tax authorities have also proposed taxing the house rent used by the judiciary in the household to address the inequality in tax law. However, the Pakistani political leadership has repeatedly shot down proposals.

Last month, the Pakistani Revenue Service (FBR) exempted judicial allowances from income tax by recognizing court rulings. It noted that “the judicial allowance and special judicial allowance are tax exempt not only in higher justice cases but also in lower justice cases,” reported The Express Tribune.

The judicial allowances are up to 300 percent above the basic salaries drawn by members of the judiciary and its institutions.

“The special judicial allowance granted to the petitioners was in recognition of their duties and therefore would not fall within the scope of salary and thus not be subject to income tax,” the Sindh High Court (SHC) said in July 2020.

Taxes aside, Pakistan’s foreign debts and liabilities rose by $ 3 billion, or 2.6 percent, in the six months ended December last year, according to data from the central bank earlier this year.

Pakistan, along with Paris Club creditors, secured US $ 1.7 billion in debt relief for the G-20 as part of the debt-suspension initiative. (ANI)