The International Monetary Fund (IMF) has urged Pakistan to implement the General Anti-Avoidance Rule (GAAR) to combat tax fraud in the General Sales Tax (GST) system.
This recommendation aims to address fraudulent practices costing the government trillions annually and may become part of the new and much larger IMF loan program, reported a national daily.
The proposed rule would prevent businesses from claiming input tax on purchases involved in fraudulent schemes. Such measures are deemed necessary to overhaul the current system, with estimates suggesting annual losses of up to Rs. 3 trillion due to fake invoices and tax evasion.
The IMF’s Technical Assistance (TA) report warns that trader fraud particularly in sectors like construction and raw material processing deprives the federal government of crucial sales tax. The report suggests amendments to the Sales Tax Act to discourage such practices.
Additionally, amendments to the Income Tax Ordinance have been proposed to limit deductions for interest payments to foreign entities and essentially prevent profit shifting. The introduction of a well-designed GAAR is emphasized as a crucial tool to counter tax avoidance.
It bears mentioning that despite efforts led by former PM Imran Khan’s government to introduce unified tax laws, these plans were abandoned and not implemented.
