World Bank Withdraws Recommendation to Tax People Earning Less Than Rs 50,000

The World Bank has withdrawn recommendation to impose tax on individuals earning less than Rs. 50,000, stating that its suggestion was based on older data that did not account for the recent spike in inflation.

The global lender’s clarification comes after Federal Board of Revenue (FBR) sources revealed that salaried class in Pakistan has contributed more in taxes compared to exporters and the real-estate sector in the last three months.

“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,” the World Bank spokesperson stated.

The spokesperson added that its suggestion was made based on 2019 data, which needs to be updated according to the recent spike in inflation rate and labour market conditions to protect low-income groups.

“Previous analysis included in the Public Expenditure Review using 2019 data suggested that a reformed income tax structure could include a lower exemption threshold for salaried individuals, but this analysis would need to be updated to take account of recent inflation and labour market changes to make sure low incomes are not affected,” the World Bank stated.

It added that recommendation in Pakistan Development Update (PDU) should have been clearer on the need for new analysis needed on more recent data to inform this reform. The World Bank recommended comprehensive tax reforms to make sure the overall system is more progressive and increase the tax burden on wealthy individuals.

The World Bank recommended reducing subsidies, closing regressive tax exemptions, and increasing taxation on the high-income individuals. It also suggested improving taxation for agriculture, property and the retail sector.

The WB stated that appropriate changes to the tax threshold need to be assessed based on the new survey data and designed to protect low-income individuals.

It is pertinent to mention that World Bank’s recommendation sparked concerns among the masses earning less than Rs. 50,000 per month and already struggling to make ends meet.

Read more: Pakistan May Impose Taxes on People With Monthly Income of Rs 50,000 or Below.

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