Islamabad: The International Monetary Fund (IMF) has rejected Pakistan’s proposed capital value tax on movable assets such as cash, gold, and prize bonds, directing the government to focus on income-based taxation instead of wealth-based levies.
In ongoing negotiations over the upcoming federal budget, the IMF also dismissed the idea of imposing a 5% federal excise duty (FED) on one-day-old chicks, terming the move inconsistent with claims of avoiding excessive taxation on food and lacking a proper sectoral impact analysis.
However, the IMF did approve a proposed tax on digital services, which is expected to generate Rs. 10 billion in revenue. It also endorsed a reduction in income tax rates for individuals earning less than Rs. 500,000 per month—providing some relief to middle-income groups.
Despite supporting middle-income relief, the IMF refused to raise the exemption threshold to Rs. 1.2 million per annum and declined to offer any concessions for the highest income bracket. The current top income tax rate remains at 35%, along with a 10% surcharge on monthly earnings exceeding Rs. 500,000.
In addition to these decisions, the IMF has urged the government to consider other revenue-generating measures. These include raising the dividend income tax on mutual funds from 15% to 20%, and increasing the withholding tax on interest income to the same level. The withdrawal of tax exemptions for venture capital companies and cinemas is also under discussion.
The IMF has also recommended imposing a 5% excise duty on processed foods—such as chips and biscuits—which would raise the total tax burden on these items to nearly 29% after accounting for existing taxes. Furthermore, it wants Pakistan to double the excise duty on fertilizer from 5% to 10% and introduce a 5% duty on pesticides, despite pushback from the Prime Minister.
The developments reflect the IMF’s emphasis on rationalizing Pakistan’s tax system by prioritizing sustainable and equitable revenue sources while avoiding ad hoc or poorly analyzed proposals.
Samra Zulfiqar, a real estate analyst at Zameen.com, is passionate about finding projects that offer buyers the best returns. Her keen insights spotlight the market’s most promising opportunities.
