FBR Declines to Revise Tax Exemption on Salary Threshold

FBR Declines to Revise Tax Exemption on Salary Threshold

Islamabad, October 25, 2023 – The Federal Board of Revenue (FBR) has officially declared that it has no intentions to revise the current tax exemption threshold for salaried individuals, putting an end to speculation surrounding potential changes in tax policy.

In a recent meeting with the Senate Standing Committee on Finance, the FBR clarified its position regarding the tax exemption threshold, asserting that there is no ongoing consideration of proposals to modify this threshold, which presently stands at Rs600,000 per annum for both salaried and business individuals.

The Senate Standing Committee on Finance, led by Senate Saleem Mandviwala, had requested the FBR and the Finance Ministry to provide insights into efforts to broaden the tax base without further burdening existing taxpayers. The Committee took up the agenda item after reports circulated about the World Bank’s recommendation for Pakistan to eliminate tax exemptions.

FBR officials emphasized that neither the FBR nor the World Bank has advocated lowering the current exemption threshold for this group of taxpayers.

During the discussion, Senators, including Farooq H Naek, raised concerns about expanding the tax net, particularly within the retail and service sectors, where only 13 percent of Pakistanis shoulder 75 percent of the tax burden. The FBR chairman acknowledged this disparity but also clarified that the World Bank’s recommendation regarding agriculture tax falls under provincial jurisdiction and is beyond the FBR’s purview.

Addressing the reported news of the World Bank’s proposal to eliminate tax exemptions, the FBR stated that while the Bank had suggested taxing real estate and the agricultural sector, there had been no formal communication from the donor agency on this matter. It was also clarified that taxation of agricultural income is the responsibility of provincial governments, and the federal government lacks the authority to impose taxes on agricultural income.

Furthermore, the FBR chairman highlighted the need to bridge the tax gap and increase the number of taxpayers in Pakistan. He noted that tax collection cannot be based on the 65 percent of the population with low incomes and that the country’s tax revenue could substantially increase if 15 million more people began paying taxes.

In this context, the Senate Committee requested the FBR to provide a comprehensive briefing on the number of taxpayers, the breakdown of direct and indirect taxes in total tax collection, and the extent of revenue loss due to the smuggling of goods.

Senator Naek expressed concerns over Pakistan’s continued reliance on borrowing to fund expenditures, citing the need for a higher tax-to-GDP ratio as a potential solution.

As the FBR holds its stance on the existing tax exemption threshold, Pakistan’s fiscal policymakers will need to explore alternative avenues to enhance revenue collection and alleviate the disproportionate tax burden on a minority of taxpayers. The Senate Standing Committee on Finance remains committed to addressing these critical financial issues in the nation.