The government on Tuesday refused to commit to restoring income tax exemption for Pakistani diplomats posted abroad due to the International Monetary Fund (IMF), as Foreign Minister Bilawal Bhutto Zardari feared the tax could “paralyse” his ministry.
The foreign minister also termed the Finance Ministry’s decision to exclude the Foreign Service of Pakistan from a 150% executive allowance as “unfair and illogical”. The Finance Minister Miftah Ismail and Foreign Minister Bilawal met at the Q Block to find solution but their meeting remained inconclusive.
The Minister of State for Finance, Dr Aisha Pasha, stated that the matter of restoring the income tax exemption for Pakistani diplomats stationed overseas will be brought up with the IMF, as the government cannot enact such a measure without the IMF’s approval. She emphasised that, at present, the revival of the IMF program is of utmost importance to the nation.
During a meeting between Pakistan People’s Party (PPP) Chairman Bilawal Bhutto-Zardari and Federal Minister for Finance Miftah Ismail, attended also by the Minister of State, a range of financial issues were discussed including those related to Pakistan’s Missions abroad and the Ministry of Foreign Affairs, according to a handout issued by the Finance Ministry afterwards.
The recent removal of the income tax exemption on allowances and perquisites given to Pakistani employees posted abroad will have an annual cost of Rs1.035 billion in fiscal year 2022, according to the Federal Board of Revenue (FBR).
“Enforcing this tax is tantamount to virtually paralysing a premier institution of the state,” the foreign minister wrote to the prime minister. Bilawal said that it was surprising that instead of granting the much-needed upward revision of allowances, a tax had been imposed that significantly reduced even the current level of these allowances.
Pakistan workers assigned overseas receive multiple stipends and benefits for items like housing, education costs, and other needs. Before the budget, these allowances were not taxed. But under the IMF agreement, these allowances become part of taxable income.
Bilawal requested an immediate halt to the implementation of taxes on allowances and benefits for employees assigned overseas and a revision of the June 19, 2022 memo regarding the executive allowance to include officers of the Foreign Affairs Ministry.
According to an official, Prime Minister Shehbaz Sharif had established a committee that would take the decision regarding income tax exemption and executive allowance. FBR Chairman Asim Ahmed had also been made a member of the committee.
The finance minister has acknowledged the importance of the foreign missions abroad and has assured the foreign minister that their financial issues will be addressed through appropriate procedures. The relevant authorities have been directed to expedite the process for resolving these issues. This is the first time since 1947 that income tax has been imposed on allowances and perquisites of all officers and officials posted at Pakistan missions abroad, as outlined in the Finance Act 2022.
He further stated that taxing the allowances and perquisites that were meant to ensure “financial solvency of our diplomats and their representational status will shift the focus of our personnel abroad” from work to survival.
The foreign minister wrote that the tax would equally impact the officers, officials of ministries of commerce, information, overseas Pakistanis, Intelligence Bureau, Federal Investigation Agency, Inter Service Intelligence (ISI) and armed forces serving in various countries.
“The implementation of this tax goes against the very purpose of these allowances, which is to help them cover the cost of living in their duty stations and effectively and forcefully safeguard and advance Pakistan’s national interests,” Bilawal stated.