Pakistan has requested the International Monetary Fund (IMF) to approve tax rate reductions in line with regional levels to prevent the growing outflow of capital, as the global lender remains unsatisfied with the country’s progress in taxing retailers and real estate investors, The Express Tribune reported.Â
In discussions with the IMF, Pakistani officials raised concerns over high transaction taxes and economic uncertainty driving capital outflows, particularly to Dubai. The Federal Board of Revenue (FBR) identified 72 real estate agents involved in facilitating property investments in the Gulf, some of whom belong to influential families. However, authorities admitted they had no effective mechanism to prevent such investments.
The FBR also acknowledged its failure to bring traders and jewellers into the tax net. The much-publicised Tajir Dost scheme, aimed at registering small traders, was expected to generate Rs50 billion in tax revenue but failed to deliver significant results. Large traders reportedly discouraged smaller businesses from participating, preventing the scheme’s expansion to 43 cities.
Despite these setbacks, the FBR reported some improvements in tax compliance. In the first eight months of the fiscal year, tax registrations rose by 30%, with return filers increasing from 509,173 to 774,494. Withholding tax payments surged by 43%, while corporate tax collections jumped from Rs86 billion to Rs291 billion due to higher tax rates and increased compliance.
The IMF was also informed about changes in income tax returns allowing landowners to declare their holdings more easily. However, the FBR lacks access to comprehensive land records, making it difficult to collect agricultural income tax, especially on leased land.
Efforts to expand the Point of Sale (POS) network, which connects shops to the FBR database for real-time transaction tracking, were highlighted as progress. The number of integrated shops increased from 30,500 in June to 37,200, although the actual number of registered traders remains around 10,000. The FBR plans to target 137 major retail chains for improved tax tracking.
Bringing jewellers into the tax system remains a significant challenge, with many high-net-worth individuals still evading registration. In response, the IMF is expected to refine the FBR’s taxpayer expansion targets by specifying the number of new retailers, real estate agents, and wholesalers added to the tax base to ensure transparency in reporting.
While briefing the foreign diplomats on the outcomes of its first review, the IMF expressed general satisfaction with Pakistan’s reform efforts, however, it highlighted slow advancements in property and retail sector taxation and raised concerns over the pace of privatisation.Â
The lender cautioned against rapid economic expansion, warning that a sudden surge in growth could exacerbate fiscal and current account deficits.
The government informed the IMF about its ongoing efforts to introduce an agriculture income tax but acknowledged that implementation would be gradual. However, the IMF noted that there had been no breakthrough in bringing retailers into the tax net, and further changes were needed in real estate taxation.
