ISLAMABAD: In order to revive the stalled IMF program, the government is considering meeting another condition of the Fund to abolish corporate income tax exemptions with estimated cost of around Rs 150 to 200 billion through a Presidential Ordinance.
“To give confidence to the IMF’s Executive Board, that the government is considering doing away with corporate sector income tax exemptions through a Presidential Ordinance” for revival of the IMF program ahead of the coming budget 2021-22,” a top official of government confirmed to The News here on Saturday night. This Ordinance will be made part of the next Finance bill 2021-22 on eve of the coming budget.
Now the revival of the IMF program is just around the corner as the government had already hiked the electricity tariff and POL prices in recent weeks.
The IMF and FBR teams held crucial online deliberations where the FBR identified tax exemption of the corporate sector worth Rs 150-
Rs 200 billion that could be withdrawn through an ordinance. However, one top FBR official said that if the exemptions are withdrawn in the current fiscal they would become effective from next fiscal year but the IMF staff considers them imperative to satisfy its executive board.
The working by the FBR shows that the corporate sector enjoys income tax exemptions up to Rs 200 billion and it remains to be seen what quantum of exemptions would be abolished. The IMF team also inquired about income tax exemptions granted to Chinese companies under CPEC arrangement. Those are meant for 25 to 30 years therefore they cannot be withdrawn, Pakistani authorities told the IMF team. Besides, the IPPs exemptions would also end after 30 years and both sides agreed that no further exemptions will be provided. “Now the ball is in the government's court as to when Islamabad moves to fulfill the IMF conditions for the second review. Following this it is likely that the IMF board will grant approval for the release of a third tranche worth $450 million probably in March 2021,” said the top official sources.
Important exemptions of corporate sector that can be abolished included tax credit for investment in balancing, modernization and replacement of plant & machinery (corporate manufacturing sector) worth Rs65.168 billion, tax credit for enlistment in Stock Exchange worth Rs 357 million, tax credit for newly established Corporate industrial units (including corporate dairy farming) worth Rs5.573 billion, tax credits for industrial undertakings established before the first day of July, 2011 are worth Rs 6.486 billion. It also includes the income tax exemption to the ECO Trade and Development Bank worth Rs495 million) and income tax exemptions to Pakistan Mortgage Refinance Company Limited worth Rs0.9 million.
Besides, the income tax exemptions on any income derived by Sukuk holder in relation to those issued by “The Second Pakistan International Sukuk Company Limited” and the Third Pakistan International Sukuk Company Limited, including any gain on their disposal. The move will cause an impact Rs2.771 billion to the Sukuk holders. Exemption impact of Rs 1.66 million on any income of an agency of a foreign govt’s company, firm or association of persons, or any other non-resident person approved by the federal government for the purposes of this clause, from profit on moneys borrowed under a loan agreement or in respect of foreign currency instrument approved by the federal government. Agencies of foreign governments, foreign nationals or any other non-resident person approved by the federal government to have an impact of Rs6.557 billion, the income tax exemption to the Collective Investment Schemes or a REIT Schemes Collective distributing over 90% of their incomes to certificate holders or shareholders to show an impact of Rs5.228 billion, income tax exemption available to the Modarbas worth Rs425 million.
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