ISLAMABAD: The IMF has asked Pakistan to implement taxation on both civilian and military pensioners, alongside withdrawing income tax exemptions from various pension schemes in the new budget.
The Fund proposed this ahead of its mission’s arrival in Islamabad to kick off negotiations for two bailout packages.
On Friday, some officials of the IMF team reached Islamabad to start discussion on the proposed package for Pakistan. Later on, the IMF mission’s chief Nathan Porter will also join the team to advance negotiations.
The IMF’s demand to tax pensioners is among several recommendations for the upcoming budget, with the IMF aiming for additional tax recovery equivalent to 0.5% of the Gross Domestic Product (GDP) from salaried and business individuals.
If Pakistan agrees to tax retired individuals, it could generate additional annual income tax ranging from Rs22 billion to Rs25 billion.
Pakistan is seeking two separate loan programmes: the Extended Fund Facility (EFF) for structural reforms and the Resilience and Sustainability Facility (RSF) to address climate change-related challenges. This marks the 24th bailout package, indicating past failures to achieve objectives.
The size and duration of the IMF programme are yet to be finalized, with Finance Minister Aurangzeb mentioning that it would take some time to finalize the RSF facility.
Pakistan’s annual financing requirements range from $25 billion to $30 billion, posing a heavy burden on the government.
Government sources indicate the 24th programme is expected to be one of the toughest, focusing heavily on enhancing revenue, with new taxes amounting to Rs1.3 trillion proposed, half targeting salaried individuals.
The IMF recommends Pakistan eliminate income tax exemptions for pensioners and tax their pensions and gratuity from the new fiscal year, starting in July.
Additionally, it proposes ending income tax credits for voluntary payments to workers’ participation funds.
These measures may negatively impact Pakistan’s fixed-income population, already grappling with double-digit inflation. Despite rising tax burdens over the years, salaried individuals and pensioners have little influence.
The IMF also advises Pakistan to review income tax and pension regimes for sole proprietors benefiting from social security and pension contributions.
In the last budget, the government increased the burden on pensioners by taxing contributions to private-funded gratuity and pension schemes.
Income tax exemptions for retired government servants and military personnel are estimated to cost over Rs12 billion annually.
The exemption on pension commutation received under any pension scheme could also be withdrawn, generating close to Rs4 billion in revenue.
I am an experienced writer, analyst, and author. My exposure in English journalism spans more than 28 years. In the past, I have been working with daily The Muslim (Lahore Bureau), daily Business Recorder (Lahore/Islamabad Bureaus), Daily Times, Islamabad, daily The Nation (Lahore and Karachi). With daily The Nation, I have served as Resident Editor, Karachi. Since 2009, I have been working as a Freelance Writer/Editor for American organizations.
