Crushing tax target

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The IMF's latest tax policy suggestions for Islamabad in relation to the upcoming annual budget may cause further consternation, as salaried individuals can expect an even greater share of the tax burden to be placed on their shoulders.

At the core of the recent discussions between the government and the IMF has been the anticipated Rs14.307 trillion tax target, where the Washington-based lender is emphasising additional revenue measures and a rebalancing of fiscal resources.

The Fund has also pushed back against the government's desire to reduce the tax burden on the salaried class, effectively accusing the government of fudging the numbers to push through a reduction after statistics showed an astounding increase of over 50% in income tax recovered from salaried individuals this year. Despite this, the IMF is averse to even raising the exempted income level, let alone revising tax slabs.

At the same time, the government could do better than rely on the much-criticised Laffer Curve model to justify its tax policy. On that note, the competence of tax policymakers, up to and including members of the federal cabinet, can be gauged by the price of packaged milk.

Most countries exempt milk entirely or charge a lowered rate, usually without any variance based on packaged or raw milk. In our malnutrition-riddled country, packaged milk has an 18% tax rate, while raw milk is tax-free. Many FBR officials reportedly see nothing wrong with this situation. Meanwhile, poor urban dwellers must find a local cow if they want to get milk at an affordable price.

More common ground could be found, however, on privatisation-related issues. While sales of state assets are only one-time income, ridding the exchequer of bleeding assets brings long-term savings that help balance the budget.

The government could use these savings as justification for reducing some of the income tax burden or increasing some public spending, especially since there is likely to be a bump in the defence budget due to the simmering threat of conflict with India.