In a move that has sparked controversy and potential conflict with international financial obligations, the government of Pakistan recently passed legislation granting Rs50 billion annual income tax exemption to the Pakistan Civil Aviation Authority (PCCA) and the Pakistan Airports Authority (PAA).

This decision comes in the wake of the approval of a $3 billion Stand-By Arrangement (SBA) with the International Monetary Fund (IMF), raising concerns over compliance with the terms set forth by the international lender.

The exemptions, detailed in official documents, reveal an annual fiscal impact of Rs50 billion for the current year, stemming from legislation passed through the Pakistan Civil Aviation Authority Act, 2023, and the Pakistan Airports Authority Act, 2023.

These laws were enacted shortly after the IMF’s executive board green-lit a bailout package aimed at stabilizing Pakistan’s economy.

This legislative action has not gone without internal opposition. The Federal Board of Revenue (FBR), the country’s main tax collection agency, has reportedly been at odds with the decision, citing a violation of the Income Tax Ordinance of 2001.

According to this ordinance, particularly section 54, income tax exemptions to any entity under any law other than the ordinance itself are prohibited.

Despite the FBR’s attempts to counter the exemption and recover the funds, support from the Ministry of Law and Justice for the aviation authorities’ stance has complicated efforts.

The Ministry’s backing hinges on interpreting non-obstante clauses within the new acts, suggesting that these recent laws should take precedence over the previous income tax ordinance due to their later enactment.

The IMF is scheduled to review Pakistan’s adherence to the SBA terms in an upcoming board meeting, where the approval of a staff-level agreement and the disbursement of an additional $1.1 billion in funding will be considered.

Moreover, the government is reportedly seeking further assistance, indicating ongoing financial challenges.