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Thursday Feb 18 2021

Govt to abolish corporate income tax exemptions to address IMF concerns

  • Government hoping to fetch Rs150-200 billion via abolition of tax exemptions
  • Govt abolishing tax exemptions to satisfy IMF’s Executive Board before devising budget for 2021-22

ISLAMABAD: To satisfy the International Monetary Fund (IMF), the federal government has planned to abolish corporate income tax (CIT) exemptions either via a presidential ordinance or by introducing a bill before parliament.

“We are exploring all available options, including the promulgation of a presidential ordinance or the laying of a bill before parliament, to abolish the corporate income tax exemption and fetch Rs150 billion to Rs200 billion. However, nothing is so far decided,” top official sources told The News.

Sources suggest that the Federal Board of Revenue (FBR) has finalised the withdrawal of CIT exemptions from the Income Tax Ordinance 2001. It now remains to be seen how many exemptions will be abolished following the approval of policymakers, they added.

The move is being undertaken as the government is hoping to satisfy the IMF’s Executive Board before it sets about budgeting for 2021-22.

Read more: IMF to release $500 million to Pakistan after reforms pending executive board approval

The government will likely table a separate bill before parliament to demonstrate that it is serious about withdrawing the exemptions.

Meanwhile, the FBR believes that it is not practically feasible to withdraw CIT exemptions either through an ordinance or a bill, but believes the easy way would be to do so using the Finance Bill for 2021-22.

However, the IMF negotiators were not interested in that option, because it would make it a tougher task for them to convince their executive board to revive the stalled programme for Pakistan.

Slash in revenue collection targets

The Pakistani negotiators also tried to convince the IMF to slash the FBR’s annual tax collection target from Rs4,963 billion to Rs4,550 billion.

Read more: FBR surpasses seven-month tax target by Rs17b

Although, a decision on this has not yet been taken, Pakistani officials are making last-ditch efforts to convince the IMF negotiators before they send their review report to the Executive Board.

When contacted, the IMF’s Resident Chief in Pakistan, Teresa Daban Sanchez, on Wednesday evening replied, “The authorities are committed to a fiscal strategy anchored by the sustainable primary deficit approved in the FY2021 budget. Remember that primary deficit is a key parameter under the extended financing facility supported program.”