Bilawal decries tax on diplomats’ allowances

The government on Tuesday remained non-committal to restoration of income tax exemption for Pakistani diplomats posted abroad due to its hands tied by the International Monetary Fund (IMF), as Foreign Minister Bilawal Bhutto Zardari feared the tax could “paralyse” his ministry.

The foreign minister also termed the Finance Ministry’s decision to exclude the Foreign Service of Pakistan from a 150% executive allowance as “discriminatory and beyond any logic”. The Finance Minister Miftah Ismail and Foreign Minister Bilawal met at the Q Block to find solution but their meeting remained inconclusive.

“The issue of restoring the income tax exemption for Pakistani diplomats posted abroad will be taken up with the IMF, as the government cannot do it without the consent of the IMF,” said Dr Aisha Pasha, the Minister of State for Finance. At this time, she added, the revival of the IMF programme was in the supreme national interest.

A Finance Ministry handout issued after the meeting stated that “various financial issues related to Pakistan’s Missions abroad and Ministry of Foreign Affairs were also discussed during the meeting” between Bilawal and Miftah, which was also attended by the minister of state.

In the new budget, the government withdrew the income tax exemption on payment of any allowance or perquisite paid or allowed to Pakistani employees posted abroad. The annual cost of the exemption is Rs1.035 billion in fiscal year 2022, according to the Federal Board of Revenue (FBR).

“Enforcing this tax is tantamount to virtually paralysing a premier institution of the state,” the foreign minister wrote to the prime minister. Bilawal said that it was surprising that instead of granting the much-needed upward revision of allowances, a tax had been imposed that significantly reduced even the current level of these allowances.

Pakistani employees posted abroad get various allowances and perquisites for house rent, education fees and other purposes. Before the budget, these allowances were exempted from the income tax. But under the IMF deal these allowances were made part of the taxable income.

Bilawal had asked for immediate suspension of the implementation of the tax on allowances and perquisites to the employees posted abroad and revision of the memorandum of June 19, 2022 regarding the executive allowance to include the officers of the Foreign Affairs Ministry.

According to an official, Prime Minister Shehbaz Sharif had set up a committee that would take the decision about the income tax exemption and executive allowance. FBR Chairman Asim Ahmed had also been made member of the committee.

“The finance minister acknowledged the importance and contribution of the foreign missions abroad and assured the foreign minister of addressing their financial issues through appropriate procedures and directed the relevant authorities to expedite the process for resolution of these issues,” the Finance Ministry statement said.

“For the first time since 1947, income tax has been imposed on allowances and perquisites of all officers and officials posted at Pakistan missions aboard in the Finance Act 2022 by parliament on June 30,” Bilawal wrote to the Prime Minister Shehbaz last week.

He further stated that taxing the allowances and perquisites that were meant to ensure “financial solvency of our diplomats and their representational status will shift the focus of our personnel abroad” from work to survival.

The foreign minister wrote that the tax would equally impact the officers, officials of ministries of commerce, information, overseas Pakistanis, Intelligence Bureau, Federal Investigation Agency, Inter Service Intelligence (ISI) and armed forces serving in various countries.

“The imposition of this tax simply runs counter to the raison d’etre of these allowances ie, enabling them to meet the cost of living in their respective stations of duty and effectively and forcefully safeguard and advance Pakistan’s national interests,” Bilawal stated.

Executive allowance

Bilawal pointed out that the officers of the Foreign Service of Pakistan serving in Pakistan had been excluded from the executive allowance. This exclusion, he added, was “largely discriminatory and beyond any logic as well as principles of justice and fairness”.

The Finance Ministry “distorted the cabinet’s decision of June10, turning it into a discriminatory measure, which was clearly not the intention of the cabinet while taking the decision about the executive allowance”, according to the foreign minister.

Last week, the government notified a highly discriminatory 150% executive allowance for the bureaucrats serving in the President’s Secretariat, Prime Minister’s Office and the Federal Secretariat, while excluding many other officers also serving under the same roof.

The Express Tribune had reported that the notification was highly discriminatory and was prone to court challenges in addition to raising questions about its timing, as the country was passing through difficult economic times.