Budget 2022-2023 and Burden on Salaried Person

The government of Pakistan is steadily gliding towards International Monetary Fund (IMF) programme for which preconditions are already being met. Recently, just within a time span of one week the discount rate has been increased by 150 basis points to 13.75% while petrol price has hiked to Rs60 per liter. These are just the initial steps and the fuel prices are expected to stay on the upward trajectory followed by the electricity charges. Yet these are necessary steps for economic stability.

Another important policy will be in the form of increased income tax in the upcoming budget in the fiscal year 2022-2023. The IMF has released the following guidelines which will simplify the taxation system and make income tax regime more expensive. These policies will increase revenue for the country in the long run.

  • Reduce both the number of rates and income tax brackets.
  • Reduce tax credit and allowances
  • Introduce special tax producers for very small taxpayers
  • Bring additional taxpayers into the tax net

The one who earns more will pay more tax and this will increase the burden on salaried class whose major chunk will go as income tax. The third clause in the policy will long-term structural problem of Pakistan and might help in correcting internal and external imbalances. As per IMF and World Bank, tax-to-GDP ratio has the potential to reach 23%-26% respectively.

The high amount of indirect taxes is ludicrous and it also makes the system less progressive. The agriculturists and real estate barons are major consumption engines of imports, so they must contribute in tax as much as industrialists do. In the upcoming budget, low-income households will also remain insulated as the Personal Income Tax (PIT) threshold of three times per capita remains in place.

Genuine taxpayers can reduce their tax liabilities through smart investments as per Income Tax Ordinance 2001. Zakat payments, payments to other charitable institutions, investments in mutual funds, life insurance policies and investments in pension funds can reduce tax liability. These investments generally offer competitive return and also have the advantage of reducing tax liability.

There is no other way for country to survive this economic crisis but to increase tax net and raise the tax-to-GDP ratio. If we do not follow these policies and rich do not pay their genuine tax then the country will again be at the door step of IMF.

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