ISLAMABAD: The Federal Bureau of Revenue (FBR) may be tasked with collecting between Rs11.2 to Rs11.5 trillion for the next fiscal year. The International Monetary Fund (IMF) has proposed two taxation models for Pakistan: the Australian model, which features centralized administration and rate-setting with a strict revenue-sharing formula, or the Indian model, which includes a Cash Value Accumulation Test (CVAT) where federal and provincial authorities share tax administration and interstate trade is subject to a federal rate.
The IMF has recommended overhauling Pakistan’s General Sales Tax (GST) to address its structural deficiencies. These include the bifurcation of the tax base between federal and provincial governments, an overly generous list of tax exemptions, and a complex federal sales tax system with multiple rates. Implementing these reforms could generate an additional Rs1,300 billion, or 1.3% of GDP, annually.
Specific recommendations include eliminating all zero-ratings except for exports, bringing all goods to an 18% GST rate, restricting exemptions to residential property supply (except for the first sale), and removing reduced rates under the Eighth Schedule except for food staples and essential education and health items, which would be taxed at 10%. The IMF also suggests imposing 18% GST on petrol and diesel and removing compliance-related tax distortions.
The IMF is considering Islamabad’s ability to implement these measures and deliver on key commitments before engaging in formal negotiations for a new bailout package.
