Pakistan, IMF talks: Power tariff to go up by 25-30pc

ISLAMABAD: Pakistan and the IMF are inching towards formal revival of the stalled Fund programme, as the government has decided to hike power tariff by 25-30 percent and to abolish up to Rs200 billion corporate sector income tax exemptions.

The top political leadership has given go-ahead to the economic team to fulfill all the required prerequisites for revival of the stalled programme under $6 billion Extended Fund Facility (EFF).

The power tariff will be hiked in a gradual manner up to 25 to 30 percent in a bid to fulfill the IMF condition,” top official sources confided to this correspondent. The IMF program stalled in February 2020 after the COVID-19 outbreak. The second review is now under completion and it is yet to be seen whether the second and third reviews will complete simultaneously or these will be done separately.

The IMF and FBR teams held a virtual crucial round of talks last Monday night and both sides explored the possibilities of abolishing the corporate sector income tax exemptions.

The FBR identified Rs150 billion worth of tax exemption of the corporate sector, which could be withdrawn either through a presidential ordinance or a mini-budget by moving a fresh finance bill in the second half (Jan-June) of the current fiscal year.

A top FBR official said if these exemptions were withdrawn in the current fiscal, the results will appear in the next fiscal year.

The FBR’s working showed that the corporate sector enjoyed up to Rs200 billion income tax exemptions and it is yet to be seen how much exemptions would be abolished in the next phase of legislation approval process.

When this correspondent contacted a top official of FBR, he said the IMF and FBR teams had held hectic rounds of parleys on Monday night and discussions were still underway.

“There is agreement on a number of clauses, but there are significant areas of divergence as well. The next meeting is expected in January 2021 because currently there are Christmas and New Year holidays.

The IMF team inquired about the income tax exemptions granted to the Chinese companies under the CPEC arrangement. The Pakistani side told the IMF officials that these exemptions were meant for 25 to 30 years and could not be withdrawn.

The IPPs exemptions are going to end after expiry of 30 years probably next year and both sides have agreed that no further exemptions would be provided.

“Now the ball is in the government’s court, and when Islamabad moves towards fulfillment of pre-requisite conditions, the IMF will accomplish the second review and its board will grant approval for release of a third tranche of $450 million probably in February or March 2021,” said top official sources.

When this reporter contacted IMFs Resident Chief in Pakistan Teresa Daban Sanchez seeking her comments, she replied, “Thanks for reaching us out. The Pak authorities and IMF team remain closely engaged. Discussions are going on and both teams are working very hard and non-stop to bring the programme review to a positive conclusion”.

On the possibility of withdrawal of income tax exemptions, the sources said Pakistan and the IMF had explored possibilities to abolish corporate sector income tax exemptions.

Important exemptions of corporate sector that can be considered to be abolished in next piece of legislation include tax credit for investment in balancing, modernization and replacement of plant & machinery (corporate manufacturing sector) Rs65.168 billion tax credit for enlistment in Stock Exchange (Companies opting for enlistment in a registered stock exchange) (Rs357 million), tax credit for newly established industrial undertakings, corporate industrial units (including corporate dairy farming) Rs5.573 billion, tax credit for industrial undertakings established before the first day of July, 2011 (Corporate industrial units including corporate dairy farming) Rs6.486 billion, income tax exemption on any income derived by Sukuk holder in relation to Sukuk issued by “The Second Pakistan International Sukuk Company Limited” and the Third Pakistan International Sukuk Company Limited, including any gain on disposal of such Sukuk, Sukuk holders (Rs2.771billion impact), profit on debt derived by Hub Power Company Limited on or after the first day of July1991 (Hub Power Company Limited), exemption impact of Rs1.66million, any income of an agency of a foreign government, a foreign national (company, firm or association of persons) or any other non-resident person approved by the Federal Government for the purposes of this clause, from profit on moneys borrowed under a loan agreement or in respect of foreign currency instrument approved by the Federal Government, Agencies of foreign Governments, foreign nationals or any other non-resident person approved by the Federal Government (Rs6.557 billion), Income tax exemption to the Collective Investment Schemes or a REIT Schemes Collective Investment Schemes and REIT Schemes that are distributing more than 90% of their incomes to certificate holders / shareholders. (Rs5.228 billion), income tax exemption available to the electric power generation projects on the profits and gains derived by a taxpayer from an electric power generation project set up in Pakistan on or after the 1st day of July, 1988. Rs26.888 billion, Income from exports of computer software or IT services or IT enabled services (exemption available to the exporters of computer software, IT services or IT enabled services) Rs1.239 billion revenue impact.

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