Pakistan urges IMF to reduce tax rates for key sectors

ISLAMABAD: Facing a downward revision in its annual tax collection target, the Federal Board of Revenue (FBR) has proposed to the International Monetary Fund (IMF) a reduction in tax rates for the tobacco, real estate, construction, and beverage sectors for the next three months, The News reported on Friday.

The FBR projected that the current high tax rates have significantly reduced transaction volumes in these sectors. By lowering the rates, the tax machinery expects to generate over Rs100 billion in additional revenue between April and June of the ongoing fiscal year.

Pakistani authorities have conveyed their proposal to the IMF but remain uncertain whether the tax cuts will be implemented within the current fiscal year or incorporated into the 2025-26 budget.

The IMF has assessed that with full-fledged enforcement and recovery, FBR’s tax collection could touch Rs12,480 billion till end of June 30 against fixed target of Rs12,970 billion. The FBR high-ups presented simulation under historical trends of revenue collection made in the last four months over a certain timeframe. 

They made all-out efforts that with recovery in the stuck-up revenue cases in the courts, the annual tax collection target could be materialised.

After hearing the Pakistan side, IMF’s fiscal team incorporated all the available data and details in its model. 

They came up with an assessment revenue collection could maximum touch Rs12,480 billion against the desired target of Rs12,970 billion, so, there will be a shortfall of Rs490 billion. During these discussions, FBR high-ups proposed Federal Excise Duty (FED) on cigarettes needs to be revised downward by 25%. 

They quoted the industry’s projected tax collection could go up by Rs44 billion in the last quarter of the current fiscal year based on a projection decline in volume, which would be shifted towards tax-paying cigarettes.

For the real estate/construction sector, FBR has proposed transaction cost on real estate needs to be rationalised, as withholding tax on seller and purchaser under 236C and 236K might be adjusted downwards. The FBR has projected a cut in withholding rates on property, tax collection could go up by Rs20 billion.

The IMF was told that an unprecedented hike in tax rates resulted in buying and selling on stamp papers, and without payment of duty and taxes.

Same scenario applied to the beverages sector, where the volume of the tax-paying sector witnessed a major drop arising from the need for reduction in FED rates for beverages.

Govt presents solar panel tariff plan to IMF
Meanwhile, the government also shared a plan with the visiting IMF mission to rationalise the electricity tariff for net metering of solar panel owners.

This image shows workers installing a solar panel. — Reuters/file

Under the proposed plan, surplus units generated by solar panel owners would be purchased by the government at significantly lower rates.

Currently, surplus units are purchased at Rs27 per unit, but the government now proposes to reduce this rate to approximately Rs10 per unit. However, the IMF raised concerns over how the government would address the issue of solar panel owners who remain off-grid.

While the government has not yet provided a firm commitment, the IMF has flagged this issue, citing reports of a rapid increase in solar installations. These reports suggest that the growing trend of solar adoption could escalate in the coming months and years, potentially creating challenges for the overall efficiency of the power sector.

On the other hand, the government has informed the IMF about the need to rationalise power tariffs. Currently, there are 104 power plants operating across the country, of which 18 are government-owned and 86 are independent power producers (IPPs). 

So far, the government has terminated five inefficient power plants and successfully negotiated tariff reductions with 14 IPPs. Additionally, tariff reductions have been achieved for eight bagasse-based IPPs. 

“The government is now renegotiating with the remaining IPPs. There is also a proposal to utilise the available fiscal space created by the reduced debt servicing burden, which amounts to Rs1.3 trillion. These measures will help the government lower the baseline tariff,” confirmed top official sources while speaking to The News on Thursday.

source geo news