Govt rethinks tax proposals amid high cost of living

Discussions focus on income tax slabs, 18% sales tax

Shahbaz Rana June 16, 2024


The government has kicked off consultations with a view to reconsider a partial rollback of the proposed income tax rate increases for salaried individuals and exporters, alongside implementing the proposed 18% sales tax on infant milk in stages.

The internal deliberations come in the wake of sharp criticism from all segments of society and businesses reeling under the burden of the unprecedented Rs1.5 trillion additional revenue measures.

Sources disclosed to The Express Tribune that Finance Minister Muhammad Aurangzeb has broached the subject of the salaried class taxation with Prime Minister Shehbaz Sharif. However, the outcome of the consultations hinges on the fiscal wiggle room and the International Monetary Fund’s (IMF) approval.

The government hiked taxes on the salaried class to rake in an additional Rs75 billion in the next fiscal year, even though this group already coughed up Rs360 billion this year. Similarly, despite reducing the electricity cost burden of industrialists by Rs240
billion, the prime minister is also facing pressure to reverse the decision to charge standard income tax rates to exporters.

There is a proposal to gradually increase the income tax burden on the exporters instead of taking it up from the current fixed 1% regime. During the first 11 months of this fiscal year, the exporters paid a paltry sum of Rs85.5 billion, which may increase to Rs100 billion by the end of June.

However, any relief to the exporters in income tax may not bode well, particularly at a time when the government has hit almost every segment of society with undue heavy taxation and the goods being consumed by all including poor people.

“Our party is against increase in income tax of the salaried persons and exporters,” said Senator Saleem Mandviwalla of the Pakistan Peoples Party (PPP), the chairman of the Senate Standing Committee on Finance. He said that the standing committee would reject both of the proposals of the government.

The standing committee on Saturday also recommended the government to review its budget proposal of slapping 18% sales tax on infant milk. “I will discuss this issue with the finance minister with our own recommendation that the standard 18% GST rate may be reduced,” said the FBR Chairman Malik Amjad Zubair Tiwana.

The sources said that the government has already communicated to the FBR to implement the increase in sales tax on infant milk in a phased manner instead of charging 18% at once.

The government has proposed in the budget to withdraw the zero-rating facility available on the sale of infant milk in a bid to recover Rs20 billion in additional taxes in the next fiscal year.

The real impact of the 18% proposed rate of GST on infant milk will be around 25% after including the cost of additional sales tax and 2.5% new advance income tax on the supplies, said Sheikh Waqar Ahmad, the head of external affairs of Nestle-Pakistan.

Senator Anusha Rehman of the PML-N said a sudden jump of 25% increase in the prices of infant milk will be shocking for the people. She added that there should be a gradual increase in the sales tax so that people.

“The packaged infant milk is a high-end product, as people in my village do not use packaged infant milk like Lactogen,” said Amjad Zubair.

“Mothers in your village might not be using the powdered milk but it is used by the majority of the mothers in Pakistan,” said Senator Saleem Mandviwalla.

The government has also imposed 18% GST on packaged milk to raise another Rs75 billion in taxes. This will push the price of one-litre milk from Rs290 per litre to Rs342.

The PML-N government has imposed heavy taxes in the budget to show a primary fiscal surplus but it did not opt for the other option –cut the expenditures by reducing the number of ministries and restricting the spending.

The proposed budget of Rs18.9 trillion for the next fiscal year is 30% higher than this fiscal year, indicating that the ruling party was not willing to take a path that may have annoyed its allies.

The standing committee endorsed a budget proposal to allow Pakistan International Airlines to adjust its losses for the next 10 years. The Pakistan Tehreek-e-Insaf’s Senator Mohsin Aziz opposed the special exemption for the PIA.

“The government is giving a hidden incentive to the prospective buyers of the PIA who would not be required to pay income tax due to the facility of adjusting future profits against the past losses”, said Senator Aziz.

The committee also endorsed the government’s proposal to ban the foreign travel of the non-filers of the income tax returns. The FBR chairman clarified that every non-filer would not be banned from foreign travel, as the restriction would apply to only those who have been served notices to submit their annual returns.

The standing committee objected to the government’s proposal of introducing yet another new category of “delayed filers of income tax returns” and charging higher tax rates from them.

By introducing the concept of late filers, the government is slightly narrowing the path for the non-filers by telling them that they can still buy a big asset by paying higher than the filers’ price but still less than the non-filer price, said Senator Mandviwalla.

In the budget, the government has introduced three different income tax rates for the files, late filers and the non-files with the maximum rate for the non-filers.



Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ