IMF Demands Tax on Pensions in Pakistan as Bailout Talks Begin

The International Monetary Fund (IMF) delegation has arrived in Islamabad to negotiate a potential bailout package for Pakistan, and their demands include taxing pensions. This move has raised concerns about the impact on the country's already struggling fixed-income population.

Key Points:

• Taxing Pensions: The IMF proposes taxing civilian and military pensions, along with withdrawing income tax exemptions from various pension schemes. This could generate an additional Rs22-25 billion annually.
• Increased Tax Burden: The IMF seeks to recover Rs600 billion in additional taxes, with half potentially coming from salaried individuals. This comes amidst rising inflation and stagnant wages.
• 24th Bailout Package: These negotiations mark Pakistan's 24th IMF bailout program, raising questions about the effectiveness of previous agreements.
• Focus on Revenue Enhancement: The IMF emphasizes boosting tax collection through the Federal Board of Revenue (FBR), with proposals for new taxes totaling Rs1.3 trillion.
• Impact on Fixed Income Groups: Taxing pensions and reducing tax benefits could severely impact retirees and salaried individuals facing high inflation and declining purchasing power.

Proposed Tax Measures:

• Eliminating income tax exemptions for pensioners.
• Taxing pension amounts and gratuity payments.
• Ending tax credits for voluntary contributions to workers' participation funds.
• Reviewing tax benefits for sole proprietors with social security and pension contributions.
• Withdrawing tax exemptions on: Pension commutation received from the government. Contributions to private-funded gratuity and pension schemes. Gratuity or pension commutation upon retirement or for heirs in case of death. Tax credit for contributions to approved Pension Funds. Pensions received by Pakistani citizens from former employers. Income from SECP-approved Pension Funds. Pension funds of Punjab, Sindh, and Khyber-Pakhtunkhwa. Investments in Behbood Savings Certificate and Benefit Account and Shuhadas Family Welfare Account.

The IMF's demands for increased tax revenue come at a cost for Pakistan's most vulnerable populations. The government must carefully consider the social and economic implications of these measures before reaching an agreement with the IMF.

This article was published at IMF Demands Tax Hikes, Including Pensioners – Finance Bill 2024