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The federal government is considering imposing income tax on more than Rs 200,000 monthly pension, judicial allowance and house rent in the next budget. The proposals are part of a plan to eliminate tax breaks from next fiscal year.

According to Finance Ministry sources, the tax proposals are being finalized before next week’s meeting with the IMF. Sources said that one of the proposals is to impose income tax on the pension of retired civil servants, judges and generals exempt from income tax.

According to sources, no formula has been worked out yet in this regard but the idea is to levy a tax on the pension of retired civil servants at the lowest, highest scale.
The 2019-20 Expenditure Tax Report shows that the government had to bear a loss of Rs. 21 billion in paying tax free pension. The IMF has been urging Pakistan to review tax laws that benefit the wealthy.

Tax authorities have also proposed a tax on house rent paid to judges, with the aim of eliminating discrimination in tax laws. In the last financial year, a house rent allowance of Rs 32 million was paid to the judges of the Supreme Court and High Courts.

According to sources, the tax authorities have proposed to the government to rewrite a provision of the Income Tax Ordinance through the Finance Bill 2021 in which the existing scope was the basis of the court decision to exempt judicial allowance from income tax.