The parties failed to agree on a new income tax on wage earners and the unemployed or an 18 percent sales tax on agriculture and health care.
Sources said the discussions revolved around imposing a 45% income tax on salaried and non-salaried people who earn more than Rs 467,000 a month. Currently, the highest income tax rate is 35% for those earning Rs 500,000 per month.
However, the parties agreed to increase the income tax for exporters who paid only 86 billion rupiah in taxes this year, 280% lower than the tax levied to the salary group. Pakistan has also shown willingness to tax pensions.
Sources indicated that HPG and the government could not agree on income tax, income tax for salaried and non-salaried persons and maximum income tax. HPG calls for raising the top income tax rate from 35% to 45%, bringing together people with salaried, non-salaried or other sources of income into the same tax bracket. However, government officials want to raise the annual taxable income limit to Rs 900,000 and are reluctant to raise the top income tax rate to 45 percent. They are willing to show flexibility to maintain the current limit of Rs 600,000 per annum.
One proposal being considered is to raise the annual income tax threshold to Rs 900,000, while the tax rate on a monthly salary of Rs 100,000 will increase from 2.5% to 7.5%. Income tax on income of Rs 133,000 will increase from 12.5% to 20% and on income of Rs 267,000 it will increase from 22.5% to 30%.
The salaried class paid 325 billion rupees in income tax in the first 11 months of this fiscal year, expected to reach 360 billion rupees by the end of June. If the HPG proposal is accepted, the salaried class will pay Rs 540 billion in taxes in the next financial year, which will not be offset by the 30 percent increase in wages.
Sources said the International Monetary Fund wanted Pakistan to offer an alternative if it did not want to raise taxes on the salaried class. Another round of negotiations will begin soon.
An agreement has been reached between HPG and the government to change the tax regime for exporters. Under this agreement, the current 1% income tax for exporters will be considered the minimum and will require exporters to submit documents related to their expenditure and income, which will increase the tax burden on exporters.
Sources also indicated that the parties could not agree on an 18% sales tax on fertilizers, pesticides, seeds, medicines, solar panels and medical and surgical equipment. The government does not want to impose sales tax on these items.
