Pakistan and IMF had a staff-level agreement last month for the approval of the second to fifth reviews and release of the next loan installment of $500m, subject to following certain conditions. In this regard, the Prime Minister, Imran chaired a cabinet meeting and gave the approval of introducing the Money Bill to withdraw about 80 income tax exemptions and reform the tax laws in the National Assembly’s coming session. The session of the National Assembly would be convened next week.
Later, another meeting was held in the Federal Board of Revenues regarding the same issue. The IMF had asked for certain conditions for the revival of the stalled bailout programme. The conditions include the increasing electricity tariffs, introduction of new bills, and withdrawal of some tax exemptions.
According to a cabinet member, tax incentives would not be used as an instrument for attracting investment. The aim of the tax reforms is to streamline the tax system, remove existing loopholes, reduce the discretionary powers of tax collectors and tax practitioners, and introduce automation. The Prime Minister said that the tax system should be reformed and restructured to facilitate the businesses and help the economy grow.
The Federal Board of Revenue has estimated the total exemptions of Rs.1.15 trillion, including Rs.378 billion income tax exemptions. The exemption from total income comes to Rs.212 billion and the cost tax credit is Rs.104.5 billion. Some of the proposed withdrawal of tax exemption includes the withdrawal of income tax exemption, available to IPPs. The existing IPPs would continue availing the exemptions due to the sovereign guarantees. The tax exemptions, available to the Real Estate Investment Trusts would be withdrawn.
The tax credit on the listing of new companies in the stock market has also been proposed to be withdrawn. The income tax exemption to sports Boards and a reduced rate for Pakistan Cricket Board may also be withdrawn. The income tax facilities, available to the film industry may be changed.
The Federal Board of Revenue will have to collect an additional amount of Rs.1.3 trillion in the next financial year including more than Rs.700 billion through additional revenue measures. The remaining around Rs.600 billion would be collected through the existing revenue system.