ISLAMABAD: Prime Minister Imran Khan has given a green signal for the abolition of corporate tax exemptions (CIT), likely through a legislative change within the next few days to please the IMF board of directors, sources said on Friday.
“The government will put a draft CIT amendment to parliament to achieve Rs.150 to 200 billion effective July 1, 2021,” the sources said. “To please the IMF Executive Board, the government will propose to parliament the bill that will pave the way for the revitalization of the stalled fund program under an expanded fund facility.”
The economic team had previously held a meeting in the PM secretariat together with the prime minister, at which he gave a green signal for the abolition of the income tax exemption. A high-level meeting was then held at FBR headquarters, attended by PTI economics ministers.
“To reassure the IMF Executive Board that the government has decided to abolish corporate income tax exemptions through a budget amendment bill to revitalize the IMF program ahead of the upcoming 2021-22 budget,” one affirmed senior official told The News.
However, a senior FBR official said that if the exemptions were withdrawn this fiscal year, they would take effect from the next fiscal year. The staff of the International Monetary Fund consider them essential to keep the board of directors happy.
The FBR’s work shows that the corporate sector enjoys income tax exemptions of up to Rs 200 billion, and it remains to be seen what number of exemptions would be abolished. The IMF team also inquired about income tax exemptions given to Chinese companies under the CPEC agreement. These are planned for 25 to 30 years and can therefore not be withdrawn, the Pakistani authorities informed the IMF team.
In addition, the exemptions for independent power producers would end after 30 years and both sides agreed that no further exemptions would be foreseen.
“Now the ball is in the government court as to when Islamabad meets the IMF conditions for the second review. Following this, it is likely that the IMF board of directors will approve the release of a third tranche, expected to be worth $ 450 million in March 2021, ”an official said.
Important corporate sector exemptions that can be abolished are tax credits for investments in offsetting, modernization and replacement of machinery and equipment (manufacturing sector) amounting to Rs 65.168 billion, tax credits for listing in the stock exchange amounting to 357 million Rs and Rs 5.573 billion in industrial establishment (including dairy farming) tax credits and Rs 6.486 billion in industrial business start-up tax credits before July 1, 2011. It also includes income tax exemption for the ECO Trade and Development Bank in the amount of Rs 495 million and the income tax exemption for the Pakistan Mortgage Refinance Company Limited in the amount of Rs 0.9 million.
In addition, the income tax exemptions on income received by the Sukuk holder in relation to the income issued by The Second Pakistan International Sukuk Company Limited and Third Pakistan International Sukuk Company Limited will cover any gains on their disposal. The move will have an impact of 2.7 billion rupees on the Sukuk owners. Exemption effect of Rs 1.6 million on the income of an authority of a foreign government company, a company or an association of persons or another non-resident authorized by the federal government for the purposes of this clause from the profit from funds under a loan agreement or in relation to the Federal government approved foreign currency instruments. Foreign government, foreign national or other non-resident agencies that have been approved by the federal government for Rs 6.5 billion impact, income tax exemption on the collective investment schemes, or a collective REIT scheme to distribute over 90 percent of their income For certificate holders or shareholders who wish to prove an impact of Rs 5.2 billion, a tax exemption is available to the Modarbas worth Rs 425 million.