IMF urges FBR to scrap special tax regime for construction sector

Fund calls to end FBR's discretionary powers, enhanced tax marmonisation, and establishment of Tax Policy Unit

The International Monetary Fund (IMF) has outlined several key recommendations for the Federal Board of Revenue (FBR), aimed at overhauling the country’s tax structure. 

The global lender recommended an end to the special tax regime for the construction sector and include the sector into the standard income tax framework.

The IMF team is visiting Pakistan for the second review on the $3 billion standby agreement (SBA) by engaging different government departments. 

Among the IMF’s proposals is the elimination of the FBR’s discretionary power to award tax incentives to industrial undertakings and the Cabinet’s similar authority.

Future tax incentives, if any, should be limited in duration and subjected to thorough cost-benefit analysis, with a swift withdrawal mechanism for underperforming incentives. 

Furthermore, the IMF recommends rescinding tax exemptions currently offered to donations and non-profit entities under the Second Schedule of the Income Tax Ordinance, proposing instead that they qualify for tax credits.

The international financial institution also suggested a reevaluation of tax credits for charitable donations and certain individuals to ensure appropriate eligibility criteria. 

It emphasizes the need for broader terms for the National Tax Council (NTC), including the harmonization of tax rates and the foundation for agricultural income and property tax laws.

Additionally, the IMF advised the federal government to bolster provincial tax law enforcement and to create a Tax Policy Unit within the Ministry of Finance, Revenue, and Economic Affairs. 

This is alongside developing frameworks for data exchange between the FBR and other relevant bodies, enhancing overall tax administration efficiency and compliance.

Monitoring Desk
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