ISLAMABAD: At a time when the economy is grappling with second wave of Covid-19, the International Monetary Fund (IMF) has accepted Pakistan’s plea to delay implementation of some significant tax measures for a period of six months.

The agreement was reached during technical-level talks on delaying tax measures in the sales tax act and on changes in the personal income tax slabs, well-placed sources in the Federal Board of Revenue (FBR) told Dawn.

However, the virtual talks will resume in the first week of January 2021 after the Christmas break on corporate income tax mostly related to withdrawal of exemptions.

So far there has been no agreement on a downward revision of revenue collection target and additional revenue measures for the next half year. The government had announced in the last budget plans to record 25 per cent growth in FBR revenue collection to achieve the target of Rs4.7 trillion, but the first five months saw only over 4pc growth in revenue collection.

Talks on corporate income tax to resume next month

The IMF had asked the FBR at the time of negotiations on $6 billion Extended Fund Facility (EFF) for tax reforms including initiatives related to sales tax and income tax. One major initiative in sales tax was withdrawal of exemptions.

FBR officials believe that technically they are still in the IMF programme and the programme is not suspended. These discussions show the continuity of our programme, they say.

Sources said the second and third quarterly review could not be carried out amid Covid-19 and it was further delayed.

When this reporter sent written questions to IMF Resident Chief in Pakistan Teresa Daban Sanchez seeking her comments, she replied: “Unfortunately, I will not be able to respond questions related to the ongoing discussions.”

Ms Teresa said no interaction with press was policy of the IMF “during” discussions aimed at bringing programme reviews to a positive conclusion. “The only thing that I could share with you right now is that the Pakistani authorities and the IMF team remain closely engaged on discussions,” she added.

Sales tax exemptions

The sources said the IMF and Pakistan had agreed to resume talks on the issues of sales tax exemptions in July 2021. The Fund wants Islamabad to withdraw sales tax exemptions especially on food items. However, the FBR has carried out analysis of those exemptions with the State Bank of Pakistan to assess its inflationary impact. After the working, the sources said, the IMF has agreed to bring no change in the sales tax act until July 2021.

Salary slabs

In the income tax, the sources said, the IMF wanted Pakistan to bring changes in the personal income tax rates. It was also proposed that the number of salary slabs be reduced from 20 to eight with increase in tax rates.

However, the sources explained, that IMF agreed to resume talks on changes in the personal income tax rates in June 2021. They had an extensive discussion on the personal income tax rates before deferring it, the sources said.

Pakistan technical team led by Finance Secretary Naveed Kamran held detailed discussions on the corporate income tax. The team had shared all their proposals with the Fund and final touches on corporate tax were expected in January, the sources said. “We have agreed on a very large area in the taxation on corporate sector,” they said, adding that there were also disagreements in some areas, which would be discussed after resumption of talks next month.

Published in Dawn, December 26th, 2020