The International Monetary Fund (IMF) has reportedly raised concerns regarding the Federal Board of Revenue’s (FBR) proposals for significant tax relief for the salaried class in upcoming fiscal year budget. The global lender is said to believe the proposed reductions are too substantial.
According to reports, the IMF has dismissed Pakistan’s argument that high tax rates negatively impact revenue collection. Instead, the Fund has advised authorities to adhere to its expert recommendations rather than citing local economic conditions. The Revenue Division’s proposal to ease the tax burden on salaried individuals was specifically questioned by the IMF.
Pakistan had reportedly put forth proposals to increase the annual income tax exemption threshold from Rs. 600,000 to Rs. 1.2 million and introduce revised tax slabs with rates of 10 percent, 25 percent, 33 percent, and 35 percent, alongside adjustments to income brackets. The IMF has reportedly opposed these specific measures.
IMF Mission Chief Nathan Porter has outlined four key priority areas for Pakistan’s economic program. These include achieving a tax target of Rs. 14.307 trillion, recalibrating National Finance Commission (NFC) transfers without constitutional amendments, reducing the size of the government, and accelerating the privatization process.
Discussions with the IMF have also indicated limited scope for significant tax breaks in the real estate sector. While a proposal to reduce the withholding tax on property transactions by 0.5 percent is being considered, a divergence exists between the FBR, which seeks this to be treated as a final tax, and the finance minister, who prefers it to remain adjustable.
Other tax-related discussions in the budget negotiations have included the possibility of reducing the 18 percent sales tax on packaged milk to between 15 percent and 17 percent; however, no final decision has been reached on this matter. A proposed federal excise duty on biscuits was also debated, but consensus was not achieved.
Meanwhile, discussions are ongoing regarding the potential withdrawal of the tax-free status for ex-Federally Administered Tribal Areas (FATA).
The IMF team, currently engaged in virtual talks from Turkey, is expected to arrive in Islamabad next week for in-person discussions. The final budget negotiations are scheduled to conclude on May 23.
