Impasse in Pakistan over diplomats' tax exemptions, allowances

Islamabad [Pakistan], July 27 : Due to the constraints by International Monetary Fund in view of Pakistan's crippled economy, the country's government has once again failed to restore the income tax exemption and allowances for Pakistani diplomats posted abroad, media reports said.
In the new budget, the government withdrew the income tax exemption on payment of any allowance or perquisite paid or allowed to Pakistani employees posted abroad. The annual cost of the exemption is Rs 1.035 billion in the fiscal year 2022, according to the Federal Board of Revenue (FBR).
In a meeting, Pakistan's Foreign Minister Bilawal Bhutto Zardari decried the tax which is being imposed on diplomats' allowances and said that the tax could "paralyse" his ministry, Global Times reported.
Pakistani employees posted abroad get various allowances and perquisites for house rent, education fees and other purposes. Before the budget, these allowances were exempted from the income tax. But under the IMF deal these allowances were made part of the taxable income.
Bilawal had asked for immediate suspension of the implementation of the tax on allowances and perquisites to the employees posted abroad and revision of the memorandum of June 19, 2022 regarding the executive allowance to include the officers of the Foreign Affairs Ministry.
The stalemate on the issue is credited by Pakistani leaders to the International Monetary Fund (IMF). The matter was put up in a meeting at the Q Block which also saw the presence of Finance Minister Miftah Ismail and Foreign Minister Bilawal.
Though the meeting was held to reach at some solutions over the tax issue however the meeting remained inconclusive.
"The issue of restoring the income tax exemption for Pakistani diplomats posted abroad will be taken up with the IMF, as the government cannot do it without the consent of the IMF," said Dr Aisha Pasha, the Minister of State for Finance.
At this time, she added, the revival of the IMF programme was in the supreme national interest.
After the meeting, a Finance Ministry handout was issued. The handout pointed out that "various financial issues related to Pakistan's Missions abroad and Ministry of Foreign Affairs were also discussed during the meeting."
In a letter to Prime Minister Shehbaz Sharif, the foreign minister wrote the prime minister, "Enforcing this tax is tantamount to virtually paralysing a premier institution of the state."
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.
Pakistani Prime Minister Shehbaz Sharif had set up a committee that would take the decision about the income tax exemption and executive allowance. FBR Chairman Asim Ahmed had also been made member of the committee.
The foreign minister also termed the Finance Ministry's decision to exclude the Foreign Service of Pakistan from a 150% executive allowance as "discriminatory and beyond any logic".
"The finance minister acknowledged the importance and contribution of the foreign missions abroad and assured the foreign minister of addressing their financial issues through appropriate procedures and directed the relevant authorities to expedite the process for resolution of these issues," the Finance Ministry statement said.
"For the first time since 1947, income tax has been imposed on allowances and perquisites of all officers and officials posted at Pakistan missions aboard in the Finance Act 2022 by parliament on June 30," Bilawal wrote to the Prime Minister Shehbaz last week.
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.