IMF dismisses reports of tax hike on salaries in Pakistan

The International Monetary Fund (IMF) has refuted recent media reports suggesting that the lending body intends to urge Pakistan to increase taxes on salaries and business income.

Contrary to circulating information, the IMF has clarified that there are currently no plans to make such requests.

Esther Perez Ruiz, IMF’s resident representative in Pakistan, addressed the media reports in an email statement to Reuters, emphasizing that no directives have been issued at this time regarding changes to taxation on salaries or business income.

The clarification from the IMF comes amid media reports, published a day earlier, suggesting a potential reduction in the number of tax slabs for the salaried and business class, from seven to four, which would impact middle and upper-middle income groups.

The proposal, aimed at more than doubling tax collection from individuals and businesses, was said to put forward by a technical mission of the IMF during its two-week review of Pakistan’s tax policies.

Notably, Pakistan, currently under a caretaker government, successfully averted a sovereign debt default with the approval of an IMF loan program in July. The $3 billion Stand-by Arrangement (SBA) saw Pakistan receiving $1.2 billion as the initial tranche.

The nation had been grappling with a severe balance of payment crisis, marked by significantly depleted foreign exchange reserves, high inflation rates, and an unprecedented currency devaluation.

As part of the IMF bailout deal, Pakistan was required to implement fiscal adjustments, including raising $1.34 billion in new taxation. These measures contributed to an all-time high inflation rate of 38 percent year-on-year in May, the highest in Asia, with inflation persisting above 30 percent.

Pakistan continues to navigate economic challenges, with the IMF's assistance playing a crucial role in stabilizing Pakistan's financial landscape. The government faces the task of managing economic reforms while addressing the concerns of various income groups affected by fiscal adjustments.