The United States Agency for International Development (USAID) has threatened to cut grants by a hundred percent in the case of tax deductions.
According to documents available to ProPakistani, USAID would cut aid in proportion to the amount of tax deducted, and it might slash $3.4 million next year, which is equivalent to about 200 percent of the tax deducted.
American, European, and British aid agencies seek tax exemption from the Pakistani government and have also demanded to exempt low-interest and grant-aided projects from taxes.
Along with the European Union, other countries, including Germany and Denmark, have demanded that the grant-in-aid be tax-exempt. The Economic Affairs Division (EAD) has warned the government that the financial aid or grants could be in jeopardy in case the tax exemptions are not granted.
The EAD also recommended giving tax exemption to concessional loan and grant schemes before the budget 2022–23 commences. Officials of the EAD also complained that the Federal Board of Revenue (FBR) did not make any concessions to such schemes in the finance bill. According to the documents, the cost of projects has increased after sales tax has been levied. This consequently creates a difficult situation for the donors.
There has been a decline in the number of concessional and grant schemes as a result of the taxes by the FBR, said the EAD. The Japan International Cooperation Agency (JICA) grants have been very low since 2014, and the donors believe that sales tax significantly increases the cost of projects. They should therefore be tax-exempt, said the EAD.
The EAD has also sought assistance from the Senate Standing Committee on Finance.
