How Will Pakistan Resolve Tax Policy Disagreements?

June 10, 2024

Pakistan and the International Monetary Fund (IMF) have been unable to agree on any changes to suggested tax policies during recent talks. The main points of disagreement are combining the income tax rates for paid and non-salaried people and putting a single 18% sales tax on food and medical supplies.

Key Issues in Negotiations

The differences are mostly about a few very important things:

Income Tax for Salaried and Non-Salaried Individuals: The IMF wants to raise the maximum income tax rate from 35% to 45% for people with monthly incomes over Pakistani Rs 467,000. This would affect both salaried and non-salaried individuals. This suggestion goes against Pakistan’s plan to keep the top rate at 35% for salaried workers while potentially agreeing to the higher rate for non-salaried people.
Taxation of Exporters: Everyone agrees that exporters should pay more taxes because they have been charged less than other groups in the past.
Sales Tax on Essentials: The government doesn’t like the idea of putting a standard 18% sales tax on essentials like fertilizers, pesticides, seeds, and healthcare goods because it could cause inflation and public backlash.

Implications for Individuals and Sectors

The suggested changes to taxes will have a big effect on many areas:

For groups with middle and low incomes: People with lower incomes might have to pay higher taxes under the new tax slabs, which would hurt people in the middle of the income range the most.
Health and Agriculture Sectors: Putting an 18% sales tax on important farming supplies and medical items could make them more expensive to make and use.
Salaried Individuals: If the income tax rates are changed, salaried people may have to pay a lot more in taxes, which means they will need a big raise in pay to cover the extra cost.

Negotiation Outlook and Economic Pressures

Since things are stuck at this point, the IMF has asked Pakistan to come up with other ideas that might lower the taxes that people have to pay. Soon, there will be another round of talks, and both sides are hoping to find a middle ground. Pakistan is under a lot of pressure to get a new loan from the IMF so that it doesn’t fail. They are hoping to finish the talks before the end of the fiscal year.

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