Pakistan and the International Monetary Fund (IMF) are still grappling with several key issues as they negotiate the terms of a new loan program. According to sources within the Finance Ministry, disagreements persist on tax exemptions for former FATA (Federally Administered Tribal Areas) regions and the tax treatment of various income groups.
A major sticking point appears to be the continuation of tax breaks for Pakistan’s former FATA territories. While the IMF pushes for their immediate removal, the Finance Ministry argues that a one-year extension is crucial to support development efforts in the region. This includes tax breaks on imported machinery and income tax relief. One area where progress has been made is income tax on exporters. Both sides have reportedly agreed to a revised system that calculates taxes based on exporters’ income and expenses, replacing the current flat rate of 1%. However, negotiations remain deadlocked regarding income tax rates for salaried and non-salaried individuals. Additionally, the IMF’s proposal to impose an 18% sales tax on the agriculture and health sectors faces resistance from Pakistan. The Finance Ministry has signaled its openness to taxing pensions exceeding one lakh rupees per month. Meanwhile, discussions are ongoing regarding the creation of a national tax authority or council to streamline federal and provincial tax collection.
