Capital autonomy may bring new tax

Govt prepares proposals for new taxing mechanisms ahead of IMF economic review

ISLAMABAD:

The federal government has begun considering proposals to introduce a new local tax in Islamabad if the capital is granted the status of an autonomous unit, while Pakistan and the International Monetary Fund (IMF) are set to begin negotiations this month on the fifth review of the ongoing loan programme.

Sources told The Express Tribune that the proposed taxes include potential streams of revenue which will be allocated for the operation of basic facilities and administrative infrastructure within Islamabad. "It will be spent on hospitals, schools, colleges and other educational institutions, welfare works and administrative processes," they said.

"The tax collection proposals will be discussed with the IMF delegation during the next economic review. The approved taxes will then be introduced in the upcoming fiscal year's budget," they added.

The sources clarified that the final estimate for the target tax revenue is yet to be made. As part of the proposal review process, initially, the tax proposals will be prepared by the FBR, after which proposals will be presented to the tax subcommittee which has been specially established to review tax mechanisms for an autonomous Islamabad.

Following the relevant subcommittee's approval, the proposals will be presented to the committee established under the chairmanship of the Minister for Planning. Afterwards, the proposals will be presented to Prime Minister Shehbaz Sharif and then a final decision will be taken following the IMF's approval.

The Ministry of Finance has directed all relevant ministries and institutions to compile necessary data and reports in preparation for the negotiations with the IMF during the economic review. The relevant ministries have been tasked with briefing the IMF delegation on structural benchmarks and economic reform targets. Notably, energy sector reforms with specific emphasis on circular debt targets in the electricity and gas sectors have also been included as part of the negotiations' agenda.

The sources said that the government is betting on successful negotiations between Pakistan and the IMF to pave the way for the release of the fifth tranche of the loan programme.

Pakistan is expected to receive one billion dollars in the fifth tranche in addition to the $200 million which will be handed over to deal with climate change losses. Thus, in case of a successful review from the IMF, Pakistan is expected to receive a total of $1.2 billion.

The sources further elucidated that the formation of a new system for the use of local taxes and distribution of resources is part of the federal capital's proposed roadmap. They added that along with the formation of the administrative structure, attention is also being paid to integrating financial mechanisms through the inclusion of IMF's suggestions for an effective tax system.