Govt to restore teachers' tax rebate
The government has requested the International Monetary Fund (IMF) to allow it to restore the 25% income tax rebate for teachers and researchers, which was suddenly imposed on educators after tax authorities awoke from a deep sleep.
Separately, the Federal Board of Revenue (FBR) has missed its seven-month tax collection target by a wide margin of Rs470 billion. The FBRfor the sixth consecutive monthfailed to achieve its January tax collection target of Rs957 billion.
The authorities missed the monthly target by Rs86 billion despite achieving 29% growth in a struggling economy. As a result, the tax collection shortfall during the July-January period widened to Rs470 billion.
Setting the wrong target is the key reason behind the constant shortfall, coupled with a slowing economy and weak enforcement. The FBR also faces serious capacity issues, which is evident from its recent move to fully charge income tax from teachers and researchers.
After remaining quiet for almost two and a half years, the FBR started serving notices to educational institutions in December, demanding not only the full income tax charge but also the recovery of arrears from July 2022.
The government had granted a 25% income tax rebate to teachers and researchers, but the FBR began sending notices claiming that the rebate had been withdrawn effective July 2022. Authorities stated that the rebate had been deleted from the law in 2022 and that the FBR only became aware of it in 2024.
On January 14, the FBR sent a notice to the Principal Officer of the National University of Science and Technology (NUST) with a threat.
Titled "Intimation regarding discontinuance of 25% rebate in respect of full-time teachers and researchers," the FBR stated: "You are allowing a 25% rebate of total tax liability, which has already been discontinued through the Finance Act 2022, with effect from July 2022."
It further stated that NUST was required to collect and deposit the full tax liability of a teacher or researcher and recover the arrears from their payments.
"In case of non-compliance, recovery proceedings under Section 161 of the Income Tax Ordinance shall be initiated, and tax liability along with default surcharge shall be recovered from the withholding agent," the FBR warned.
Sources told The Express Tribune that Finance Minister Muhammad Aurangzeb asked the FBR to take up the matter with the IMF to restore the rebate. The FBR has contacted the IMF, which appeared lenient and agreed to restore the rebate, according to government sources.
They added that there is a possibility the finance minister may announce the rebate's restoration when the Tax Laws Amendment Bill is approved this month, pending a vote in the National Assembly.
The Federation of All Pakistan Universities Academic Staff Association (FAPUASA) has condemned the FBR's decision to discontinue the 25% tax rebate for researchers and full-time teachers.
Tax collection
The government has missed the target of collecting Rs6.97 trillion in taxes during the first seven months of this fiscal year, falling short by Rs470 billion.
Despite single-digit nominal growth due to lower-than-projected inflation, the FBR still posted a 26% increase in tax collection during the July-January period and could not be blamed entirely for missing the target.
Against the Rs6.97 trillion target, the FBR provisionally collected nearly Rs6.5 trillion by the end of January.
The growth in collection was 26% against the required pace of 40%. The FBR collected Rs1.35 trillion more than last year, a significant achievement in an economy growing at less than 1% in the first quarter.
However, the government's taxation measures and assumptions in setting the annual target of nearly Rs13 trillion have put authorities under pressure. The IMF compelled the country to impose new taxes, primarily burdening the salaried class and levying taxes on nearly all consumable goods, including medical tests, stationery, vegetables, and children's milk.
For the July-January period, the FBR missed its targets for sales tax, federal excise duty, and customs duty but exceeded the income tax target.
Details show that income tax collection amounted to Rs3.16 trillion during the first seven months of this fiscal year, Rs720 billion higher than the previous year. The seven-month target was Rs2.88 trillion, which the FBR exceeded by Rs283 billion.
Sales tax collection stood at Rs2.22 trillion, Rs455 billion (26%) higher than the previous year. However, the FBR missed the seven-month target by Rs472 billion. The target was Rs2.69 trillion.
The FBR collected Rs404 billion in federal excise duty, Rs97 billion higher than the previous fiscal year.
Despite doubling the duty on cement and imposing excise duty on lubricant oil and the sale of plots and buildings, the government missed the excise duty target by Rs120 billion. The target was Rs524 billion.
Customs duty collection stood at Rs713 billion, up by Rs86 billion. However, the government missed the seven-month customs duty target by Rs167 billion. The target was Rs880 billion.