Islamabad, August 4, 2024 — The government is exploring options to provide income tax relief to the salaried class. The move comes as the coalition government faces mounting pressure from the ongoing sit-in by the Jamaat-e-Islami (JI) in Rawalpindi against inflated electricity bills and high taxes.
Addressing the federal cabinet meeting earlier today, Prime Minister Shehbaz Sharif emphasized the coalition government’s commitment to reducing electricity bills to alleviate the financial burden on the masses. He, however, urged that the issue should not be politicized.
Sources said that the government is considering various strategies to reduce direct taxes for salaried individuals earning up to Rs100,000 per month. The proposed relief, estimated at Rs40 billion, aims to support low-income groups. Discussions are underway to potentially divert funds from the development budget to facilitate this relief.
The sources also mentioned that the International Monetary Fund (IMF) would be consulted to ensure the proposed measures align with the country’s financial commitments. This step is crucial as the National Assembly recently passed a challenging national budget on June 28, targeting a tax revenue of 13 trillion rupees ($46.66 billion) for the fiscal year starting July 1. This represents an approximately 40% increase from the current year, aimed at bolstering Pakistan’s case for a new IMF rescue deal.
The tax target comprises a 48% rise in direct taxes and a 35% increase in indirect taxes over revised estimates from the previous year. Additionally, non-tax revenue, including petroleum levies, is projected to grow by 64%.
Key sectors such as textiles, leather products, and mobile phones will see an 18% tax hike. There is also an increase in capital gains tax from real estate, and workers will face higher direct taxes on their income.
Despite these tax hikes, there is a glimmer of hope as the Consumer Price Index (CPI)-based inflation recorded an 11.1% year-on-year decrease in July 2024. This is down from 12.6% in June 2024 and a significant drop from 28.3% in the corresponding month last year, according to data released by the Pakistan Bureau of Statistics (PBS) on Thursday.
The current political and economic landscape is tense, with the JI’s protest highlighting public frustration over rising living costs. The government’s potential tax relief measures are seen as an attempt to ease this burden. However, the success of these measures depends on balancing fiscal responsibility with the need to provide immediate relief to the populace.
As the coalition government navigates these challenges, it remains to be seen how effectively it can implement these tax relief measures without derailing its broader economic objectives. The upcoming discussions with the IMF will likely play a pivotal role in determining the feasibility and scope of the proposed relief.