Construction sector: IMF asks FBR to abolish special tax regime

ISLAMABAD: The International Monetary Fund (IMF) has recommended the Federal Board of Revenue (FBR) to abolish the special tax regime for the construction sector, bringing it into the ambit of the normal income tax regime.

Sources told Business Recorder here on Thursday that the tax-related issues were discussed during the first meeting held between the IMF team and the FBR high-ups on the second review of Stand-by Arrangement (SBA). The introductory meeting was held between the tax authorities and the Fund’s team on Thursday evening.

The meetings between the IMF and the FBR team will continue on Friday (Mar 15).

New advance tax imposed on construction, residential businesses

The sources stated the Fund has recommended phase-out as quickly as practicably possible of the special tax regime for the construction sector and subjecting the sector to the standard income tax regime.

The IMF has also recommended the repeal of the discretionary power of the FBR to grant tax incentives for industrial undertakings, and the discretionary power of the Cabinet to award tax incentives.

In case tax incentives are granted in the future, they should be time-bound and subject to regular assessment of costs and benefits. If costs are higher than expected initially and/or benefits lower, incentives should be immediately withdrawn, the sources said.

The IMF has also recommended repealing remaining exemptions for donations and non-profit organisations contained in the Second Schedule of the Income Tax Ordinance and making them eligible for tax credits.

The Fund has recommended reviewing the charitable donations tax credit, as well as the credit for certain persons, to assess whether changes to eligibility requirements would be desirable.

The Fund has also recommended expanding the remit or terms of reference of the National Tax Council (NTC) to include the harmonisation of tax rates and provide bases for agricultural income tax and property tax.

The federal government should encourage the provincial governments’ enforcement of provincial tax laws.

Another recommendation of the IMF is to establish a Tax Policy Unit within the Ministry of Finance, Revenue, and Economic Affairs.

The Fund has also recommended developing memorandums of understanding and protocols for an exchange of data with the FBR and other agencies.

Copyright Business Recorder, 2024