The government of Pakistan is committed to reforming our Personal Income Taxation (PIT) to change the existing tax rate structure by reducing the number of rates and income tax brackets (slabs) to simplify the PIT system and increase progressivity.
However, low-income households will be protected as the reform preserves the current PIT threshold which is almost 3 times income per capita or Rs800,000. This amount is equivalent to Rs66,000 on monthly terms.
These PIT reforms will yield an estimated 0.3 percent of GDP in revenue gains, which is equal to more than Rs225 billion in fiscal 2024.
Aiming at simplifying the system, increasing progressivity, and supporting labor formalization, it will: reduce both the number of rates and income tax brackets; reduce tax credits and allowances (except those for disabled and senior citizens, and Zakat receipts); introduce special tax procedures for very small taxpayers; and bring additional taxpayers into the tax net.
It will also reduce tax expenditures and allowances. To support the reform, we will prepare the draft legislation by end-February 2022 (new end-February 2022 SB) to ensure that it will be ready to come into effect on July 1, 2022, with the financial year 2023 budget.
