FinMin Aurangzeb Confident of Reaching New IMF Bailout Agreement by Month-End”
islaMABAD(Finance Reporter/Webdesk); IMF Recommends 45% Tax on Agricultural Income for Pakistan, Report Says” Sources, reported that the Fund has set a structural benchmark that requires provincial governments in the country to amend their laws and impose a standard individual income tax rate of up to 45% on agriculture income.
Finance Minister Muhammad Aurangzeb also called for taxing agriculture and property, citing the system cannot function without such sectors contributing to the tax net.
This move is part of the lender’s efforts to reduce the disparity in the income tax regime in Pakistan, where the agriculture sector contributes a meagre 0.1% to the total tax collection despite accounting for 24% of the economy.
In a report, the World Bank estimated that Pakistan can potentially generate up to Rs1.22 trillion in tax revenue from the agriculture sector, amounting to 1% of the country’s Gross Domestic Product.
While the provincial governments have largely consented to the IMF’s demand, the Sindh government has expressed concerns that the 35-45% tax rate is too high compared to the existing 15% maximum rate in the province.
The IMF has also stipulated that any income tax exemptions for the livestock sector must be rescinded by the end of October this year. The global lender has also asked that the new agriculture income tax regime be implemented by January 2025, with the Federal Board of Revenue authorised to collect the taxes if the provinces are unable to do so.
Chicken prices skyrocket in Lahore following budget 2024-25
The Punjab government has already given its consent to the new income tax regime for the agriculture sector, while the Sindh government is expected to eventually acquiesce to the IMF’s demands. This proposed tax reform is a significant departure from the current system, where the provinces have varying income tax rates for the agriculture sector, with some exemptions applicable up to Rs4.8 million in annual income.
At a seminar earlier this week, President Asif Ali Zardari said that the federal government was planning to tax agricultural incomes as part of the conditions set by the IMF for a new bailout package. The provincial governments would be taking the lead in this initiative, with a focus on taxing large landholding farmers based on their profitability and expenditures, he added.
Under the Constitution, the federal government is prohibited from levying taxes on agricultural income, which falls under the domain of provincial authorities. But the IMF has found a way around this constraint by asking the provinces to simply adopt the 45% income tax rate applicable to non-salaried business individuals.
Earlier,
Pakistan would strike a deal with the International Monetary Fund (IMF) this month, expressing optimism about the positive progress in talks between Islamabad and the global lender to reach a staff-level agreement on a new bailout programme. The government is looking to clinch the IMF agreement on a bailout of more than $6 billion after addressing all of the lender’s requirements in its annual budget.
“The talks with the IMF are progressing positively,” the finance czar said while briefing the National Assembly’s Standing Committee on Finance. Aurangzeb informed the body that no country could run on a 9% tax-to-gross domestic product (GDP) ratio and pledged to raise the ratio to 13%. “The Fund requires taxation on the actual income which is fair,” the minister said.
The minister in today’s briefing expressed hope to bring all the sectors into the tax net, saying that everyone will be made a filer as per Prime Minister Shehbaz Sharif’s directives. Taxes had to be jacked up because the tax net was not wide, he added. He further stated that there was a need to reduce human interference in the Federal Board of Revenue (FBR) system, adding that the government will work on increasing people’s trust in the FBR.
Aurangzeb went on to say that loan and interest repayment had a major share in the government’s expenses. He further stated that five federal ministries would be abolished, as announced by PM Shehbaz Sharif following the budget 2024-25 presentation last month and added that the decision in this regard will be made by July 30.
While addressing the standing committee, the minister said all the economic indicators remained positive during the last fiscal year, while the foreign exchange reserves remained well above $9 billion.
Moreover, the inflation rate saw a gradual decline during the last fiscal year, he added. The finance czar stated that the Pakistani currency destabilised due to a delay in the IMF programme in 2023.
Aurangzeb Expresses Optimism on Economic Front, Calls for Reform in Military’s Service Structure”
FinMin Aurangzeb further stated that some changes were being made in the service structure of the military, saying that the military’s entire service structure needed amendments.
He said that a system of contributory pension for the armed forces of Pakistan will be launched.
He said that the system has been notified for the civil servicemen from July 1, 2024; however, new pension scheme for the military servicemen will be applicable from July 1, 2025, he added.
“Those joining service from July 1 will receive their pensions under the new scheme,” he added.
The Economic Coordination Committee (ECC) of the Cabinet last month approved major changes to the federal government’s pension system.
However, the changes to the pension scheme for the armed forces follow with effect from the next fiscal year 2025-26.
Pakistan has set a tax revenue target of 13 trillion rupees ($47 billion) for the fiscal year that began on July 1, a near-40% jump from the prior year, and a sharp drop in its fiscal deficit to 5.9% of gross domestic product from 7.4% the previous year.
It aims to lower its fiscal deficit to 5.9% of gross domestic product from 7.4% last year.
While the budget may win approval from the IMF, high taxes on a struggling economy could fuel public anger, according to analysts.
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