The government has accepted to the condition put by the International Monetary Fund (IMF) to charge income tax on monthly pensions in the upcoming budget, Finance Act 2021 , according to media reports.
According to media, the IMF proposed to charge a tax of 7.5% on all pension holders because the government’s discussion with the IMF and the World Bank on the federal budget for the coming financial year is on the final stage.
It is pertinent to mention here that the federal government pays about Rs250 billion annually to pension holders. The proposal also includes taxing the profits of the Federal Government’s General Provident Fund, according to news reports, levying the 7.5 percent tax will initiate a tax revenue of Rs18 billion.
Withdrawal of other exemptions
In addition to withdrawal of exemption on pension. The government also considering withdrawing some other tax exemptions in the upcoming budget for additional revenue collections.
Withdrawal of Medial Allowance Exemption
According to media reports, a proposal to withdraw income tax exemption of more than Rs20 billion is also under consideration. “In the upcoming budget, income tax exemption on medical allowance to the salaried class may be ended,”. In addition to this tax exemptions for various other sectors may be withdrawn in the next fiscal year budget.
Pension Taxation Proposed
“In the next budget, tax revenue could be Rs5,820 billion and non-tax revenue Rs1,420 billion,” they added. Financial year 2019-20 reports revealed that the government faced a loss of about Rs21 billion on account of tax-exempted pensions. A revenue loss of Rs2.8 billion on account of pensions received by a citizen of Pakistan from a former employer.
Pension Fund Tax Exemption Withdrawal
A loss of Rs18.7 billion was on account of commutation of pensions of employees. Another Rs21 million due to tax-exempted monthly installments from the income payment plan invested with a pension fund manager.