The International Monetary Fund (IMF) has rejected key concessions proposed in the Finance Bill 2024.

The IMF has also turned down the request to reinstate a fixed income tax regime for export proceeds, despite strong lobbying from exporters. The government suggested raising the fixed tax rate for exporters from 1 percent to 2-3 percent, but the IMF insisted that all incomes, including those of exporters, should be taxed under the standard regime, according to a national daily report.

However, the IMF has agreed with the government’s proposals to remove GST on textbooks, restore rebates for professors and researchers, withdraw Federal Excise Duty (FED) on cement, and make some other technical adjustments.

The government is finalizing the Finance Bill, which is expected to be presented to the National Assembly this week. A significant challenge is managing the fiscal space of Rs. 250 billion created by reducing the Public Sector Development Program (PSDP) from Rs. 1,400 billion to Rs. 1,150 billion. The IMF opposes using this cushion to reduce tax rates.

Pakistan and the IMF have been engaged in virtual discussions for some time now. The government requested the removal of GST on stationery items, but the IMF only agreed to remove GST on textbooks, leaving other items like pencils, sharpeners, and exercise books subject to an 18 percent GST rate.

The current Finance Bill 2024 proposes that individuals earning income from exports pay a 1 percent tax on their export proceeds as the final tax. Regarding the idea that taxpayers with equal income should pay equal tax, it was proposed that income from exports be subject to normal rates with a 1 percent tax collection on export proceeds treated as a minimum tax. The IMF has rejected this proposal as well.

The government plans to increase the FED on international air tickets, doubling the rate for the next fiscal year.

For property and tax rates for the salaried and non-salaried classes, the IMF has rejected all requests for major changes in the proposed Finance Bill. The IMF is also against the gradual GST rate reduction of 6 percent for FATA/PATA regions.

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