IMF clears hurdles for PIA privatisation with tax waiver, liability transfer

The International Monetary Fund (IMF) has agreed to key concessions that remove major obstacles to the privatization of Pakistan International Airlines (PIA), including a waiver of the 18% sales tax on leased aircraft and approval for parking additional liabilities in a holding company, The Express Tribune reported. 

The IMF’s consent, still awaiting formal confirmation, follows months of discussions between the Finance Ministry, Privatisation Commission, and the global lender. 

Officials confirmed that PIA’s prospective investors would be exempted from paying 18% sales tax on new or leased aircraft, a demand that previously deterred serious bidders.

Deputy Prime Minister Ishaq Dar recently received a briefing about the PIA sell-off, with officials expressing optimism that these concessions would revive the stalled privatization process for the loss-making airline.

Earlier attempts to privatize PIA failed when a real estate developer offered Rs10 billion for a 60% stake, far below the Rs85.03 billion minimum reserve price. Prospective investors had also insisted on writing off Rs45 billion in additional liabilities and exempting aircraft leases from sales tax.

In response, the government partitioned PIA into two entities, transferring Rs623 billion of liabilities to a holding company. The Privatisation Commission briefed the IMF, arguing that these conditions were critical to making PIA’s privatization viable and aligning with global norms.

The Finance Ministry has finalized the sale of another PIA asset, the Precision Engineering Complex (PEC), to the Pakistan Air Force for Rs6.5 billion. PEC was separated from PIA’s core operations and included in the holding company. The PAF deal includes Rs2.5 billion in cash payments over five years and Rs3 billion in liabilities for pension and provident funds.

PIA’s privatization also hinges on an aviation ministry business plan requiring $500 million in investment and the acquisition of new aircraft. The sales tax waiver may be limited to planes used on international routes to protect local airlines from competitive disadvantages.