ISLAMABAD: The International Monetary Fund has asked the government of Pakistan to end tax exemptions and impose Rs1,300 billion in taxes, brining several dozen items into the standard rate of General Sales Tax of 18 percent, including unprocessed food, stationery items, medicines, POL products and others.
The IMF suggests that streamlining GST rates could generate revenues equivalent to 1.3 percent of GDP, amounting to Rs1,300 billion for the national treasury. However, the IMF has not assessed the potential inflationary impact of such a significant GST adjustment through indirect tax hikes in the foreseeable future.
The IMF’s recommendations include abolishing the Fifth Schedule, eliminating exemptions listed in the Sixth Schedule, and discontinuing the reduced tax rate outlined in the Eighth Schedule of Sales Tax. Specifically, the IMF proposes eliminating all zero ratings under the Fifth Schedule, except for exported goods. Furthermore, it suggests restricting exemptions under the Sixth Schedule solely to the supply of residential property (excluding the initial sale) and transitioning all other goods to the standard GST rate.
Pakistan is still waiting for the third installment of the stand-by agreement that was concluded in July last year.
The country is already dealing with historically high inflation and interest rates. However, additional taxation will put more burden on the population.
