IMF calls for streamlining business registration in Pakistan

ISLAMABAD: The International Monetary Fund (IMF) has urged Pakistan to adopt a unified turnover-based registration threshold for all businesses, signalling a significant shift in the country’s fiscal policy.

According to sources familiar with ongoing discussions as part of the Standby Agreement talks, IMF officials emphasised the necessity of introducing a single turnover-based registration threshold set at Rs8.5 million (equivalent to US$30,000) for all businesses.

This move aims to streamline the taxation process and enhance revenue collection efficiency.

Sources revealed that businesses with sales exceeding Rs8.5 million would be mandated to register with the tax department, underscoring the IMF’s commitment to fostering a more transparent and equitable tax regime.

Furthermore, IMF representatives advised Pakistani authorities to explore avenues for optimising the revenue potential of personal income tax (PIT) by reconsidering existing exemptions and preferential tax treatments for specific categories of individuals or income.

In pursuit of simplifying the tax structure, the IMF proposed a consolidation of tax rates applicable to individuals, advocating for a progressive tax scale with a reduced number of rate slabs. This initiative seeks to promote fairness and ease of compliance within the tax system.

Both parties engaged in discussions regarding the rationalisation of tax rates, aiming to eliminate distinctions between salaried and non-salaried individuals while limiting the number of rate slabs to no more than four.

Furthermore, the IMF urged the Federal Board of Revenue (FBR) to conduct a comprehensive review of the Second Schedule and Chapter III of the Income Tax Ordinance (Parts IX and X), with the objective of minimising or eliminating preferential treatments for fringe benefits in specific sectors.

Measures such as tax credits for investment in shares and deductions for mortgage payments are also under scrutiny.

It is estimated that these proposed measures could generate an additional 0.5 per cent of GDP in revenue, contributing to fiscal sustainability and economic stability.

In a significant development, the IMF recommended reconsidering the tax treatment of pension contributions or benefits, suggesting the elimination of deductions for voluntary payments to workers’ participation funds and the taxation of pensions.

The IMF’s proposals underscore the need for Pakistan to embark on comprehensive tax reforms aimed at enhancing revenue generation, fostering economic growth, and ensuring fiscal resilience in the face of evolving global challenges.

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