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The World Bank has advised the Pakistani government to consider significant tax reforms, such as taxing monthly salaries below Rs 50,000 and lowering the income threshold for charging the highest income tax rate of 35 percent for salaried individuals, according to a report by Express Tribune. However, these recommendations may not align with the economic challenges faced by the citizens of Pakistan, who are dealing with high inflation projected at 26.5 percent for the current fiscal year.
If these suggestions are implemented, they could impose additional financial burdens on an already heavily taxed income group. Currently, this group pays taxes on their gross earnings without the benefit of deducting expenses, a privilege enjoyed by the country's wealthiest individuals.
These proposals are part of the World Bank's broader plan to improve fiscal sustainability in Pakistan, which includes expanding the tax base, rationalizing government expenditures, and aligning federal spending with provincial mandates. The World Bank's Pakistan Development Outlook report highlights that the income tax exemption threshold for salaried individuals is currently too high, leaving formally employed individuals outside the tax net. The report also notes that the income tax threshold for the top income bracket is excessively high and captures only a limited number of taxpayers, suggesting a reduction in this threshold.
In the previous fiscal year, the salaried class contributed Rs 264 billion in taxes, while Pakistan's wealthiest exporters paid only Rs 74 billion. These recommendations, in conjunction with those of the IMF, have placed the country's lower-income salaried class in a disadvantageous position.
