ISLAMABAD:The International Monetary Fund (IMF) has objected to the government’s contentious proposals to impose a capital value tax on moveable assets and to slap a 5% federal excise duty on one-day-old chicks — measures that underscore the business-as-usual approach of the tax machinery.
While the IMF did not endorse the tax on moveable assets and one-day-old chicks, it did agree to the imposition of a tax on digital services aimed at raising Rs10 billion in revenue, according to sources in the Federal Board of Revenue (FBR).
There is also a budget proposal to increase the tax on dividend income of mutual funds from 15% to 20%. The withholding tax on interest income may also go up from 15% to 20%, according to officials of the FBR.
Among the proposals that may be announced on budget day is the withdrawal of income tax exemption for venture capital companies and funds, according to senior FBR officials. The income tax exemption for the cinema business may also be withdrawn.
There has so far been no relief in reducing the income tax rates for the highest slab of 35%, and the 10% surcharge on monthly incomes exceeding Rs500,000 may also remain, said FBR sources.
However, the IMF has agreed to reduce the income tax rates for the remaining four slabs, providing some relief on monthly incomes below Rs500,000. It has not agreed to increase the income tax exemption threshold to Rs1.2 million but has approved cutting the rate from 5% to 1%.
The sources said that the government wanted to reintroduce the wealth tax in the form of a capital value tax on all moveable assets, excluding shares of listed companies. The proposal had also been presented at the level of Prime Minister Shehbaz Sharif, said FBR officials.
The proposal to impose tax on moveable assets such as cash and gold was also shared with the IMF, said the officials. However, the IMF did not endorse the proposal on the grounds that the government should tax income instead of taxing wealth.
The FBR wanted to target cash balances in banks to raise revenue, according to FBR officials.Through the Finance Act 2022, the government had introduced a 1% CVT on foreign assets worth over Rs100 million owned by resident Pakistanis, but it has been challenged in the courts.
