IMF urges Pakistan to abolish special tax regime for construction sector

ISLAMABAD: The International Monetary Fund (IMF) has recommended the Federal Board of Revenue (FBR) to abolish special tax for the construction sector, bringing it into the ambit of normal income-tax regime.

Sources said that the tax-related issues were discussed during the first meeting held between the IMF team and FBR high-ups on the second review of the stand-by arrangement. The introductory meeting was held between the tax authorities and the fund team on Thursday evening.

The meetings between the IMF and FBR teams will continue on Friday (today).

Sources stated that the IMF has recommended phasing out as quickly as possible the special tax regime for the construction sector to bring it to the standard income-tax regimes.

The IMF has also recommended repealing the discretionary power of FBR to grant tax incentives for industrial undertakings and the discretionary power of the cabinet to award tax incentives.

In case tax incentives are granted in the future, they should be time-bound and subject to regular assessment of costs and benefits, the IMF said. If costs are higher than expected initially and/or benefits lower, incentives should be immediately withdrawn, sources said.

The IMF has also recommended repealing remaining exemptions for donations and non-profit organizations contained in the Second Schedule of the Income Tax Ordinance and making them eligible for tax credits. 

 The fund has recommended reviewing the charitable donations tax credit, as well as the credit for certain persons, to assess whether changes to eligibility requirements would be desirable.

 The fund has also recommended expanding the terms of reference of the National Tax Council (NTC) to include the harmonization of tax rates and provide bases for agricultural income tax and property tax.

 The federal government should encourage provincial governments to enforce provincial tax laws.

 According to the sources, the IMF has recommended to establish a tax policy unit within the Ministry of Finance, Revenue, and Economic Affairs.

 The fund has also recommended developing memorandums of understanding and protocols for the exchange of data with FBR and other agencies.