The International Monetary Fund (IMF) has refused to give any concessions on the number of items proposed by Pakistan in the Finance Bill 2024-25.
The Fund has decided to remove the Federal Excise Duty (FED) on cement, reinstate professor and researcher refunds, eliminate the goods and services tax (GST) on textbooks, and make a few other technical adjustments.
The government has chosen to increase the Federal Excise Duty (FED) on international airline tickets as a backup plan for lowering the FED on cement; the rate may even double in the Finance Bill.
Due to strong lobbying by the exporters against entering a regular tax framework, the IMF has thus far refused to let the government to reinstate export revenues into a fixed-income tax regime.
To gain the IMF’s approval, the government has sent its plan to reinstate a fixed regime for exporters with higher rates of 1 to 2 or 3%. But the IMF has declined to provide its consent. The fund executives want all income, including exporters’ earnings, to be subject to standard taxation.
The Finance Bill, which will be presented before the National Assembly this week, is ready to be prepared by the administration.
How will the government use the Rs250 billion in fiscal space that the Public Sector Development Programme (PSDP) reduced from Rs1,400 billion to Rs1,150 billion using budgetary resources is a question that has to be answered. Will lower tax rates be applied to this cushion? The IMF appears to be preventing the government from doing so.
The previous several days have seen virtual back and forth between Pakistan and the IMF. The government requested that the Fund remove the GST from stationery products. Only textbooks would no longer be subject to 18% GST, according to the IMF, however other things like pencils, sharpeners, and practice books may still be subject to the tax.
The IMF has now given its approval for not raising the enhanced rate on cement, despite the government’s proposal in the budget to increase the FED on cement from Rs. 2 to Rs. 3 per kilogram.
As of right now, the Finance Bill 2024–25 suggests that individuals who get revenue from exports pay a final tax of 1% on their export earnings.
