The International Monetary Fund (IMF) and Federal Board of Revenue (FBR) are regularly conducting online consultations and meetings on critical issues, including withdrawal of corporate income tax exemptions, administration of Value Added Tax (VAT), and tax amnesty scheme for the construction sector, which was extended till June 2021.
Officials well-aware of these developments informed Propakistani that the IMF and the FBR team held a webinar on Tuesday on corporate income tax reforms covering the area of corporate income tax exemptions to be withdrawn in the next budget.
Another meeting was convened between the IMF and the FBR on the simplification, enforcement, and administration of VAT in Pakistan.
The IMF team in Washington and FBR’s reform team are expected to have a meeting on the construction package on Wednesday.
Officials added that the FBR team last week briefed the IMF on the revenue position, reforms, and restructuring in the FBR. The FBR team headed by Chairman Javed Ghani and his team of Members participated in the meeting.
The tax experts of the IMF are meeting with the FBR Board Members to better understand the existing mechanisms and procedures, and help FBR in the identification of more concrete measures directed towards mobilizing the revenues.
Officials informed that the FBR identified corporate sector income tax exemptions up to Rs. 150 billion to be withdrawn from the Income Tax Ordinance 2001. The tax exemption of the corporate sector, with an estimated cost of Rs. 150 billion, may be withdrawn in the next budget.
The work done by the FBR showed that the corporate sector enjoyed income tax exemptions up to Rs. 150 billion, and it is yet to see how many exemptions would be abolished in the next phase of the legislative approval process.
Sources said that Pakistani tax authorities have agreed to avoid the practice of issuing new preferential tax treatments or exemptions and are conscious that the distortions erode the tax base, weaken fiscal discipline, and prevent a level playing field for firms.
The IMF has recommended the reform aimed at simplifying tax laws and regulations, in particular simplification of the corporate income tax and necessary further streamlining of exemptions and preferential rates related to sales tax on goods.
The reform should also create a simpler and more efficient distribution of tax bases between the federal government and provinces. In this context, The joint working group of the federation and provinces has submitted its recommendations on GST harmonization.
To strengthen revenue mobilization and support the medium-term fiscal consolidation objectives, the authorities are advancing various reforms.
On the issue of the construction package, FBR had informed the IMF that the fixed tax regime has been extended till December 31, 2021. The exemption under Section-111 from disclosing the source of income of investment has been extended till June 30, 2021. The project’s completion date of September 30, 2023, has been extended by a year more, and the exemption for disclosing the source of investment for buyers has been extended till March 31, 2023.