Govt seeks IMF go-ahead for Rs975 billion tax relief package

Prime Minister Shehbaz Sharif on Tuesday instructed his team to open discussions with the International Monetary Fund (IMF) on a proposed Rs975 billion tax relief package after a private-sector working group presented a wide-ranging plan to ease the burden on salaried and corporate taxpayers. 

As per reports, the proposals, shared with the prime minister by group chairman Shehzad Saleem, include a 25% reduction in income tax for salaried workers, removal of the 10% surcharge on income above Rs10 million, withdrawal of the super tax, and a phased reduction in corporate income tax rates.

The working group estimated that more than Rs600 billion of the suggested relief would take effect immediately if approved. However, government officials said the plan could only move forward after the IMF endorses the measures.

PM Shehbaz did not give a final decision during the meeting, and participants noted that the government must first build a case for eliminating taxes such as the super tax, the dividend tax, the minimum income tax and various provincial cesses, along with withdrawing advance income tax on exporters and removing the worker welfare and participation taxes.

The Prime Minister’s Office said the meeting included a comparative review of sectoral tax rates. Following the discussion, the prime minister formed a committee headed by Finance Minister Muhammad Aurangzeb, with Saleem and Minister of State for Finance Bilal Kayani as members. The committee has been tasked with converting the recommended measures into an actionable plan and developing a roadmap for implementation.

The meeting came days after Special Investment Facilitation Council (SIFC) National Coordinator Lt Gen Sarfraz Ahmad criticised the existing tax structure, saying industrialists had become vulnerable to frequent demands from tax authorities. 

According to reports, the group has also asked for the super tax to be abolished immediately, which it says would provide Rs190 billion in relief to companies that have faced this levy long after its initial one-year introduction.

The proposals also cover a gradual cut in the corporate income tax to 25% over two years, including bringing down the higher rates applied to banks and petroleum companies, a shift that carries an estimated impact of Rs170 billion. 

Other recommendations include halving the minimum income tax and ultimately eliminating it within two years, a step valued at Rs160 billion in relief. The group has further advised removing the 15% dividend tax, which it estimates would provide another Rs80 billion, and withdrawing the capital value tax on foreign assets, which contributes around Rs5 billion.

Another proposal under consideration is a reduction in withholding tax rates on supplies, toll manufacturing and services, a change with an estimated impact of Rs175 billion, though government officials indicated that this measure is not currently among the top priorities. 

The government may also examine the possibility of scrapping the 1% advance income tax on exporters and engaging provincial authorities on removing the 1.9% Sindh Infrastructure Cess and the 0.9% Punjab Infrastructure Cess.

According to officials, PM Shehbaz was also inclined to consider abolishing the workers’ welfare fund and participation tax, which together amount to Rs50 billion in relief, along with a proposal to withdraw the advance income tax applied on debit and credit card remittances sent abroad.