IMF agrees to flood tax

A flood tax to raise revenue for reconstruction and rehabilitation of flood-hit areas has been endorsed by the IMF.

ISLAMABAD: A flood tax to raise revenue for the reconstruction and rehabilitation of flood-affected areas has been endorsed in principle by the International Monetary Fund (IMF).

According to sources, the international funding agency has agreed to the imposition of a flood tax from October onwards. The tax is expected to generate between Rs40 and Rs45 billion in revenue this fiscal year.

The Federal Board of Revenue (FBR) has proposed that the tax be levied for the next two to three years as it believes that reconstruction efforts in flood-affected areas will take at least a few years.

The tax is expected to generate additional annual revenues of approximately Rs70 billion in coming years. The FBR has also proposed that the additional charge should be levied through a parliamentary legislation instead of an ordinance.

Reformed GST

Furthermore, the IMF may allow the implementation of the reformed general sales tax (GST) to be postponed till next January if the relevant legislation will be instituted through parliament instead of passing an ordinance.

During the recent talks between the IMF and Pakistan, the Pakistani delegation highlighted the challenges faced in the execution of the reformed GST regime due to difficulties in outlining a draft that was agreeable to Islamabad as well as the provinces.

The delegation proposed that the new tax be implemented via a bill passed through parliament instead of an ordinance to make sure that the tax is long-term.

Since the legislative process may take some time, the delegation requested for an extension in the deadline. The IMF agreed that if the legislation and the economy’s indicators show signs of progress towards the donor’s goals, it may agree to extend the deadline for implementing the reformed GST regime till January next year.

Published in The Express Tribune, September 7^th, 2010.