The International Monetary Fund (IMF) has issued recommendations to the Federal Board of Revenue (FBR) to conduct an in-depth evaluation of its current tax incentive regimes.
The goal is to identify and eliminate redundant or unnecessary incentives while suggesting the adoption of more efficient tax measures, such as accelerated depreciation for necessary incentives.
This advice aims to simplify the tax system, broaden the tax base, and lower overall tax rates.
According to reports from Business Recorder, the IMF highlighted the recent amendments in the Income Tax Ordinance (ITO), which, despite removing certain tax incentives, introduced new ones.
Notably, the Finance Act, 2023, introduced Section 44A in the ITO, offering tax exemptions and concessionary treatments for incomes derived from qualified investments under the Foreign Investment (Promotion and Protection) Act, 2022.
This includes income for investors, shareholders, their associates, and specified companies, along with third-party lenders.
Furthermore, the IMF suggests reevaluating the current classical system of taxation, which taxes corporate profits and dividend distributions, thereby resulting in the double taxation of corporate income.
Alternative tax systems, such as a one-tier corporate tax system or an imputation system, could mitigate these inefficiencies and make investments more appealing.
