World Bank urges Pakistan to implement tax on agriculture and real estate

WEB DESK: In a recent development, the World Bank has advised Pakistan to implement crucial tax reforms, highlighting the need to tax the agricultural and real estate sectors.

The recommendation includes merging the income thresholds for salaried and non-salaried individuals to establish a progressive Personal Income Tax (PIT) system.

According to the World Bank, effectively enforcing taxes on agricultural income and properties could significantly contribute to Pakistan’s revenue collection, potentially amounting to 3% of the GDP annually, equivalent to slightly over Rs3 trillion.

The institution has proposed aligning the income tax structure for both salaried and non-salaried individuals to ensure progressivity. The current exemptions, which allow an annual threshold of Rs600,000 for salaried income and Rs400,000 for non-salaried income, are set to be reconsidered.

Tobias Haque, the World Bank’s lead economist in Pakistan, emphasised the necessity of simplifying the income tax system and introducing these changes gradually. He stressed that the burden of these reforms should be placed on higher-income brackets, thereby protecting the poor during this transition.

Haque also highlighted the importance of a comprehensive tax package and expenditure reforms to address Pakistan’s unsustainable fiscal deficits.

Additionally, the World Bank is awaiting approval from its Executive Board to allocate $350 million for Pakistan under RISE-II. However, the date for the board meeting has not been confirmed yet.

The proposed reforms, according to Haque, should encompass cutting down on subsidy expenditure, eliminating regressive tax exemptions, and enhancing taxation on high-income earners.

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This includes improving the taxation mechanisms for the agriculture, property, and retail sectors. The objective is to increase the progressivity of the taxation system without adversely affecting low-income individuals.

According to The News, Haque clarified that the World Bank does not recommend lowering the current nominal threshold of Rs50,000 in monthly income for salaried workers.

Instead, the focus remains on simplifying the income tax structure and ensuring progressivity while safeguarding the interests of the economically vulnerable sections of society.

This recommendation comes at a critical juncture for Pakistan as the nation grapples with an unsustainable fiscal deficit.

The proposed reforms, if implemented effectively, could pave the way for a more stable economic future, balancing the burden of taxation and ensuring social protection for those in need.