Govt plans new tax legislation

ISLAMABAD:

The Pakistan Tehreek-eInsaf (PTI) government has planned to introduce a new legislation to withdraw income tax exemptions availed by the corporate sector to raise around Rs200 billion in additional taxes as part of its efforts to revive the stalled International Monetary Fund (IMF) programme.

The government was considering either introducing a finance bill in the National Assembly or promulgating a presidential ordinance next month to satisfy the IMF’s demand for additional tax measures, said sources in the Federal Board of Revenue (FBR).

However, according to deliberations, the legal changes would not be immediately enforced, rather the date of application could be from next financial year, said the sources.

Finance ministry sources said that the prime minister had again refused to increase electricity tariff by Rs1.48 per unit and it had also been conveyed to the IMF. The increase in electricity prices is among the four major demands of the IMF for reviving the loan programme.

The proposed arrangement for implementing the new tax measures from next fiscal year was aimed at meeting the IMF condition of withdrawing income tax exemptions and at the same time not immediately burdening businesses with additional taxes in the wake of adverse impact of Covid-19 on the economy, said the sources.

They added that the FBR and the IMF technical staff were engaged in finalising the tax exemptions and income tax credits that could be withdrawn through the new legislation.

IMF officials and Pakistani authorities were discussing clause-by-clause the corporate income tax exemptions, said the sources. FBR sources said that the authorities were discussing with the IMF the corporate income tax exemptions, tax credits and certain exemptions available under Fifth Schedule of the Income Tax Ordinance to oil and gas exploration and production companies.

These measures would generate an extra Rs200 billion in taxes but it was not final how much of the concessions would be withdrawn soon, said the sources.

The IMF has projected a shortfall of over Rs350 billion against the annual tax target of Rs4.963 trillion. However, the government wanted to bridge some of the gap through increasing collection of petroleum levy and gas infrastructure development cess, said the sources.

Discussion with the IMF on the exemptions was expected to be concluded by next week, the sources said.

“We are working on tax reforms, however, any change in the taxation structure will be enforced only after the economy recovers from the adverse effects of the coronavirus,” said Kamran Afzal, Special Secretary and spokesman for the Ministry of Finance.

Afzal said that government’s expectations were that prior actions and structural benchmarks for the revival of IMF programme should also be in line with the economic recovery. The government was working for completion of the IMF review at the earliest, he added.

An IMF mission would visit Pakistan in a few weeks and would give a formal structure to the ongoing discussions, announced Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh at a joint press conference with Minister for Information Shibli Faraz on Wednesday.

Shaikh had once again declared economic victory while citing improvement in many indicators, which gave rise to speculation that the government was preparing the ground for meeting IMF conditions.

However, IMF Resident Representative in Islamabad Teresa Daban Sanchez told The Express Tribune that IMF missions to all member countries, including Pakistan, were currently suspended due to the Covid-19 situation.

The IMF has stalled implementation of the $6 billion bailout programme since February this year and has put four conditions for its revival.

These include increase in electricity tariff, additional taxation measures to achieve the Rs4.963 trillion annual target, passage of Nepra Act and submission of SBP Amendment Bill 2020 in parliament.

In FY20, the cost of tax exemptions had been estimated at Rs1.15 trillion by the FBR. Sales tax exemption was the highest at Rs519 billion, which was equal to 45% of total exemptions, while in income tax, it amounted to Rs378 billion or one-third of total exemptions.

In customs duty, the cost of exemptions was estimated at Rs253 billion. Sources said that all the income tax exemptions would not be withdrawn. Pensions and investment funds related exemptions will also not be withdrawn.

But tax credit for investment in balancing, modernisation and replacement of plant and machinery can be withdrawn.

The Express Tribune sent questions to the IMF resident representative for her views on the government’s proposal to introduce legislation now but enforce it from next fiscal year. “There is not envisaged any interaction with press during the ongoing discussions,” replied Teresa Daban Sanchez.