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Pakistan’s IMF Talks Conclude Without New Loan Agreement

In the latest round of talks between Pakistan and the International Monetary Fund (IMF), both parties failed to reach an agreement on a new bailout package.

One of the key issues was the disagreement over higher income tax rates for the salaried and non-salaried classes, as well as an 18 percent sales tax on agriculture and health sectors.

The IMF proposed imposing a 45 percent income tax on monthly salaries over Rs. 467,000, which is higher than the current maximum rate of 35 percent on incomes over Rs. 500,000. Pakistan also showed a willingness to tax pensions beyond a certain threshold and increase the tax burden on exporters.

However, differences remained on the income tax threshold, the merger of tax rates for salaried and non-salaried individuals, and the maximum income tax rate. The IMF proposed merging the tax slabs for different income sources, but the government prefers to keep salaried and non-salaried slabs separate.

Proposed changes include increasing the taxable income threshold to Rs. 900,000 per year, with new rates of up to 7.5 percent for monthly incomes of Rs. 100,000 and 20 percent for incomes up to Rs. 133,000. For higher incomes, a proposed 30 percent rate would apply to monthly incomes of Rs. 267,000, and 40 percent for incomes up to Rs. 466,000. The highest rate of 45 percent would apply to incomes over Rs. 467,000.

The IMF also asked Pakistan to propose alternatives if it was unwilling to increase the tax burden on the salaried class. Another round of discussions is expected soon.

Additionally, the IMF urged Pakistan to end special tax regimes, including low taxes on stock market gains and bank deposits. There was no consensus on imposing an 18 percent sales tax on essential agricultural inputs and medical supplies.

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