Prime Minister Shehbaz Sharif has turned down an IMF proposal that the income tax structure for the salaried class be revamped, so that Rs 600 billion could be raised out of the Rs 3.6 trillion extra, which would be about 40 percent more than the Rs 9 trillion expected to be collected by the Federal Bureau of Revenue this year. FBR had apparently hoped to manage the collection from one of the easiest sources, the salariat, whose tax is deducted by the salary-paying organization and deposited with the FBR, allowing it to count the collection towards its target, even though even the cost of book-keeping is borne by the salary-paying organization.
For the first time, though, the CBR is faced with a PM who not only has a background both in business and academic economic theory, but who is also convinced that leakages from the system. It may be noted that he has managed to absolve his business community brethren of any wrongdoing, and has shifted the blame to the taxation machinery, which he says should collect four times the revenue it does, but which it does not. His problem is that he is a political officeholder, here today, out on his ear tomorrow. His first predecessor, PTI chief Imran Khan, is in jail; a graphic reminder of the tribulations that await politicians. He managed to convince the IMF in his first tenure to grant Pakistan an SBA, and hopes to get a larger, longer-term package now. At the moment, he has neither a yes nor a no, and much rides on the coming budget. The IMF mission has more experience with the permanent officials, and would prefer solutions that suit them. Thus, though the IMF too makes noises about the tax net, it probably thinks squeezing the salariat gets the collection the IMF wants. It will be interesting to see whether Mian Shehbaz sticks to his demand, made basically because he cannot afford the political cost of further squeezing the salariat, which has both been ravaged by inflation and hit by the economic downturn, or whether the need to keep the IMF happy is too strong to resist.
