In a significant development, the World Bank has advised Pakistan to implement taxes on the real estate sector as part of a broader strategy to address its fiscal deficit.
The World Bank has projected that taxing the real estate sector properly could result in a substantial boost to Pakistan’s tax revenue, contributing significantly to the country’s fiscal sustainability.
Currently, Pakistan has specific income tax thresholds for both salaried and non-salaried individuals. Salaried individuals earning less than Rs600,000 annually and non-salaried individuals earning less than Rs400,000 per annum are exempt from income tax.
Tobias Haque, the World Bank’s lead economist in Pakistan, emphasized the need for a comprehensive approach to generate revenue and reduce expenditures in Pakistan’s challenging fiscal situation. He stated, “We recommend that Pakistan simplifies its income tax structure, including aligning the income tax structure for salaried and non-salaried individuals, ensuring progressivity.”
The World Bank does not recommend reducing the current nominal income tax threshold. Instead, it advocates for a comprehensive tax package and expenditure reforms to address the unsustainable fiscal deficits. These reforms include cutting down subsidy expenditures, closing regressive tax exemptions, and increasing taxation on high-income earners, with a particular focus on the real estate sector to enhance progressivity in the tax system.
It is essential to protect low-income individuals during the reform process, and the World Bank emphasizes the importance of increasing social protection expenditures for this purpose.
While the World Bank supports aligning the income tax structure for salaried and non-salaried individuals over time, the burden of taxation is expected to fall on higher-income brackets. The goal is to create a more equitable and sustainable fiscal framework for Pakistan’s economic development.
The World Bank’s recommendations aim to address Pakistan’s fiscal challenges by focusing on the real estate sector while safeguarding the interests of the less privileged and creating a fair and progressive taxation system for a more financially stable Pakistan.
