In a surprising turn of events, the World Bank officially withdrew its earlier recommendation to impose taxes on monthly salaries below Rs50,000 citing fresh data that reveals significant disparities in tax contributions between different sectors of the economy.
The World Bank’s initial recommendation, which had stirred controversy and debate, was based on 2019 data. However, the international financial institution now acknowledges that this data is no longer accurate, given the recent spikes in inflation and shifting labor market conditions.
A spokeswoman for the World Bank stated, “The World Bank certainly does not recommend any reduction in the current nominal threshold, and how it was framed above may have indeed been misleading.” This clarification comes as a response to the realization that the salaried class, which includes many individuals who rely on public transport or motorcycles for commuting, has been shouldering a disproportionately heavy tax burden.
Government statistics reveal that during the July-September period of the current fiscal year, salaried individuals contributed a staggering Rs70.6 billion in income tax. This amount surpassed the combined tax contributions of the wealthiest exporters and the influential yet largely unregulated real estate sector.
The tax payments by salaried workers placed them as the fourth-largest contributors to withholding taxes, trailing only behind contractors, bank depositors, and importers.
Remarkably, the combined taxes paid by exporters and real estate players amounted to just Rs65 billion over the same three-month period, falling nearly Rs6 billion short of the taxes paid by the salaried workforce.
“The appropriate changes to tax thresholds should be assessed based on new survey data and designed to protect low incomes,” emphasized the World Bank.
In addition to the retraction of the tax recommendation, the World Bank has called for comprehensive tax reforms aimed at creating a more progressive taxation system. These reforms would entail increasing the tax burden on the most affluent individuals and closing regressive tax exemptions, ultimately increasing government revenue.
The World Bank also stressed the importance of improving the taxation of sectors such as agriculture, property, and retail, where tax evasion and underreporting are prevalent.
