Reason of News:
At a time of financial crisis is struggling with the current phase of Covid-19, the International Monetary Fund (IMF) acknowledged Pakistan’s petition to postpone the introduction of certain substantial tax initiatives for a period of 6 months.
Over View of Previous Assumptions:
The settlement was made throughout analytical negotiations on delaying the company spends in the Sales Tax Act and on adjustments to individual income tax levies, extremely poorly experts in the Federal Revenue Board (FBR). However, simulated talks will start in the first week of January 2021, after the Christmas pause on corporate tax, mainly related to the removal of exemptions. To date, no consensus has been reached on a downward adjustment of the tax generation goal and new revenue steps for the next half year. In the last budget, the government proposed a 25 percent rise in FBR revenue collection to meet the target of Rs4.7 trillion, and the first five months saw just more than 4 pc increase in revenue generation[1].
Talks on Corporate Income Tax to be Revived Next Month:
At the period of talks on the $6 billion Extended Fund Facility (EFF), the IMF asked the FBR for tax changes, including measures relating to sales tax and income tax. One big initiative in the field of income tax was the elimination of deductions. Officials of the FBR claim that they are legally already part of the IMF scheme and that the program is not discontinued. These conversations demonstrate the continuity of our program, they say. Sources said that the second and third quarterly review could not be carried out between Covid-19 and was further postponed. When Teresa Daban Sanchez sent written questions to the IMF Resident Leader in Pakistan asking for her responses, she responded, “Regrettably, I will not be available for questions due to the current discussions.” Teresa said there is no press contact between the IMF’s strategy “during” conversations aimed at taking components of integrated into a successful outcome[1].
Sales Tax Deduction
The IMF and Pakistan planned to continue negotiations on sales tax exemptions in July 2021. The Fund requires Islamabad to abolish sales tax deductions for food products in particular. However, the FBR carried out a study of these deviations with the State Bank of Pakistan to determine their inflationary effects. During the work, the IMF decided not to amend the Sales Tax Act before July 2021[2].
Salary Plates:
In terms of income tax, the IMF required Pakistan to develop recommendations in income tax rates. It was also recommended that the number of payrolls is lowered from 20 to 8 with a rise in tax rates. However, the sources clarified that the IMF planned to begin negotiations on reforms to personal income tax rates in June 2021. Before deferring, they had a wide-ranging debate on individual income tax thresholds[3].
Conclusion:
Pakistan’s project team headed by finance secretary Naveed Kamran conducted depth conversation on the corporate tax rate. The team shared all of their ideas with the Fund, and the final preparations on corporate income tax were required in January, We agreed on a very large area of corporate taxation, they added, noting that while there were differences in certain sectors that would have been addressed during the commencement of talks next month.
Reference:
- Published in Dawn, December 26th, 2020
2. IMF stands for: International Monetary Fund
3. EFF stands for: Extended Fund Facility