The International Monetary Fund (IMF) has rejected the government’s proposed tax cut in the Personal Income Tax (PIT) to the tune of Rs47 billion, leaving the government with no choice but to reconsider amendments in order to revive the remaining funds.
According to The News, the Federal Board of Revenue (FBR) granted relaxation to salaried workers earning up to Rs1.2 million annually, top official sources claim that the IMF has expressed strong misgivings about the planned PIT rate.
To assist the urban middle class, the International lender recommends that the assistance be limited to persons earning up to Rs0.2 million per month, and that tax rates in other slabs be raised afterward.
Compensation in PTI’s tenure
During the sixth review under the PTI-led government, the FBR offered compensation to those making up to one million rupees per month in salary in the budget for 2022-23 through Finance Bill 2022 in Parliament, which was set as a structural benchmark under the Fund agreement. If the proposed PIT rates are not adjusted, it could become a major roadblock to reaching an agreement with the IMF at the staff level.
The international lender intended to improve tax collection by Rs125 billion by putting PIT in a progressive manner, but the government went the other way, making it impossible for both parties to get a staff-level agreement under the $6 billion Extended Fund Facility (EFF) with the current PIT proposal.
Proposed tax for salaried class in Finance Bill 2022
According to the Finance Bill 2022, those earning up to Rs1.2 million will pay only Rs100 in tax. Previously, those earning up to Rs800,000 per year had to pay Rs10,000, those earning up to Rs1.2 million Rs30,000, and those earning up to Rs2 million Rs120,000. According to the suggested rate, a salary employee earning Rs2 million per year will only have to pay Rs56,000.
The tax burden for salary earners up to Rs3 million was formerly Rs282,000 per year, but now it is projected to be Rs159,000. Up to Rs4 million in salary, a salary earner had to pay Rs470,000 in income tax, but under the proposed rate, the tax payment is reduced to Rs304,000. The tax due for a salary earner earning up to Rs5 million was Rs670,000, but it was cut to Rs479,000 under the proposed rate.
The Finance Bill 2022 recommends providing relief up to Rs one million in salary earner who had to pay Rs1.845 million in tax, but now the tax burden has been lowered to Rs1.554 million for salary income up to Rs one million per month under the proposed Finance Bill 2022. The planned tax rates were amended upward in the remaining slabs up to Rs20 million, Rs40 million, Rs60 million, and Rs80 million.
Increased taxable limit
The FBR increased the taxable ceiling limit from Rs600,000 to Rs1,200,000 in the Finance Bill 2022, and the number of slabs in the PIT regime was decreased from 12 to 7.
Where the taxable income does not exceed Rs600,000, there would be no tax, according to new slabs imposed for the salaried class. A tax of Rs100 would be levied on taxable income exceeding Rs600,000 but not exceeding Rs1,200,000.
There would be a 7 per cent tax on the amount beyond Rs1,200,000 if the taxable income exceeds Rs1,20,000 but not Rs2,400,000.
If an individual’s taxable income is over Rs2,400,000 but not over Rs3,600,000, you would be charged Rs84,000 plus 12.5 per cent of the amount over Rs2,400,000 per year. The FBR will levy a tax of Rs234,000 plus 17.5 per cent of the amount over Rs3,600,000.
If the taxable income is more than Rs6,000,000 but not more than Rs12,000,000, the FBR will deduct Rs654,000 plus 22.5 per cent of the amount over Rs6,000,000.
When taxable income reaches Rs12,000,000, the FBR will assess a tax of Rs2,004,000 plus 32.5 per cent of the amount over Rs12,000,000 every year.
