FBR mulls 7.5% tax on pensions from July 1

KARACHI: The government is considering to impose a 7.5% tax on pensions from July 1, 2021, sources said on Saturday. The sources in the Ministry of Finance said the Federal Board of Revenue (FBR) has finalised the flat income tax rate that would be incorporated in the Finance Bill, 2021 subject to the approval by the Federal Cabinet.

The tax would be imposed on the pension of civil, military and private employees, the sources said, adding that the International Monetary Fund (IMF) had demanded the authorities to impose such a tax, which was agreed by the government.

The IMF had also demanded to raise tax revenue from the salaried income, they said, adding that the IMF had asked to generate an additional Rs175 billion from the salaried income during the fiscal year 2021/22.

At present, the government is collecting Rs130 billion annually from the salaried income. However, the IMF had suggested enhancing the revenue under this head to Rs305 billion.

The sources said the government had refused to impose an additional burden on the salaried class and opted for an alternative to imposing income tax on pensions.

7.5% tax on pensions

Further, the government has also decided to impose a tax on gratuity amount from the next fiscal year. Currently, pension income and gratuity amount are exempted from the tax under the Income Tax Ordinance, 2001.

Ali A Rahim, senior tax expert, and a former president of the Karachi Tax Bar Association (KTBA), said: “The pension income is principally exempted from the income tax.”

In the case of gratuity, the fund approved by Commissioner Inland Revenue (CIR) is exempted from tax.
Rahim said that the government should avoid imposing taxes on pension income because all other countries across the world facilitate senior citizens by providing incentives to them.

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