Washington-based lender also refuses to allow government to restore export proceeds into a fixed income tax regime
IMF Denies Restoration of Export Proceeds into Fixed Tax Regime
Fund insists on normal tax treatment for all incomesLender agrees to abolish GST on textbooks
The International Monetary Fund (IMF) has refused to grant most of the concessions proposed in the Finance Bill 2024-25.
The IMF has agreed to eliminate the goods and services tax (GST) on textbooks, restore rebates for professors and researchers, withdraw Federal Excise Duty (FED) on cement, and make some other technical changes.
To compensate for reducing the FED on cement, the government plans to double the FED on international air tickets in the Finance Bill.
Despite exporters lobbying hard, the IMF has refused to allow the government to restore export proceeds into a fixed-income tax regime. The government proposed restoring a fixed regime for exporters with increased rates from 1% to 2% or 3%, but the IMF insisted on treating all incomes, including exporters’ earnings, under the normal tax framework.
The government is set to present the Finance Bill to the National Assembly within this week.
A key question is how the government will adjust the fiscal space of Rs250 billion created by reducing the Public Sector Development Programme (PSDP) from Rs1,400 billion to Rs1,150 billion. The IMF appears unwilling to let the government use this cushion to reduce tax rates.
Pakistan and the IMF have continued virtual negotiations over the past few days. The government requested the withdrawal of GST on stationery items, but the IMF only agreed to withdraw GST on textbooks, leaving other items like pencils, sharpeners, and exercise books at 18% GST.
The government had initially proposed increasing the FED on cement from Rs2 to Rs3 per kilogram in the budget, but the IMF has agreed not to increase the rate.
Currently, the Finance Bill 2024-25 proposes a 1% tax on export proceeds as a final tax. To ensure horizontal equity—taxpayers with equal income paying equal tax—it was proposed that income from exports be subjected to normal rates, with the 1% tax on export proceeds treated as a minimum tax. The IMF has strongly resisted this proposal, making it unlikely that the government will satisfy exporters.
Regarding property and tax rates for salaried and non-salaried classes, the IMF has rejected all requests for changes, meaning no major adjustments in the proposed Finance Bill.
The IMF also opposes the gradual withdrawal of a 6% GST rate for FATA/PATA, and it is unclear how the government will convince the IMF of this politically charged decision. A cabinet member has advocated for continuing all tax exemptions until June 2025.
Clause 2 of Part III of the Second Schedule of the Income Tax Ordinance 2001 grants full-time teachers and researchers employed in non-profit educational or research institutions or universities recognized by the Higher Education Commission a tax rebate equal to 25% of the tax payable on their salary income. The federal budget proposes abolishing this rebate, but it is expected to be restored.
