Charter of the Economy A big revenue increase is proposed in the petroleum levy, which is now classified as a non-tax revenue source. The target for 2021-22 is Rs 610 billion. At present rates of levy of Rs 3to Rs 5 per liter, the likely revenue is less than Rs 100 billion. The rate will have to be enhanced to almost Rs 25 to Rs 30 per liter to achieve the target. Given the cost-push impact on inflation, the Government may find it politically difficult to achieve such a big increase in the rate of petroleum levy during 2021-22. Therefore, there could be a revenue shortfall in the petroleum levy of over Rs 300 billion. The Chapter next presents the comprehensive agenda of direct tax reforms at the Federal level, based on the identification and quantification of tax expenditures above and the taxation proposals in the latest budget. 9.5. Income Tax Reforms The number of individual taxpayers is close to 3 million and the number of companies paying taxes is 43,426. The personal income tax exemption limit is Rs 600,000. There are twelve slabs, and the maximum rate is 35 percent. The corporate income tax rate is 29 percent. The top 1 percent of the companies contribute 83 percent to corporate income tax revenue, while the top 5 percent of individual taxpayers contribute 78 percent to personal income tax revenue. The types of reform needed for withdrawal of tax expenditures highlighted in the previous section and not removed in the latest budget are described below. Transition from Block to Comprehensive income: Currently, the practice is to tax blocks of income separately. This has greatly reduced the progressivity of the tax system. Usually, the tax return contains only earned income. Unearned income in the form of interest, dividends, property income and capital gains are subject to presumptive taxation separately. For example, interest income is subject to a fixed tax of 10 percent. A preliminary step has been taken by inclusion of rental income, interest income above Rs 5 million and capital gains above Rs 20 million in total income. However, less than 1 percent of the interest income recipients have been covered. There is need for taxation of comprehensive income by adding all types of income. This will usually imply that the marginal tax rate on unearned income becomes higher. As such, the existing presumptive taxes should be transformed into advance withholding taxes. It will lead to a fairer tax system with persons having total income of less than Rs 600,000 being able to claim a tax refund. Rationalization of the Withholding Tax Regime: The withholding tax system within income tax contributed 67 percent to revenues in 2018-19. There are at least 70 levies in the form of advance or fixed and final taxes. The top levies are on imports, contracts 100