IMF rejects FBR plea to reduce property transaction taxes

• Pakistan, IMF move towards SLA with written assurances.
• Global lender considers adding climate finance to $7bn EFF. 
• IMF refuses to lower taxes on property, tobacco, beverages.
  

ISLAMABAD: The International Monetary Fund (IMF) has ultimately declined the Federal Board of Revenue's (FBR) request to lower transaction taxes for the property sector at this stage, The News reported on Monday.

Previously, senior officials asserted that the Washington-based lender had, in principle, agreed to reduce the withholding tax on property buyers by 2% starting April 1, 2025, contingent on obtaining formal approval in writing.

Now the IMF has stated officially that it has not agreed to slash the transaction taxes for property.

The IMF had also refused to lower tax rates for tobacco and beverages and now refused to entertain the last and final plea of the FBR to slash the tax rates for the property sector. On the other hand, Pakistan and the IMF were moving towards striking a Staff Level Agreement (SLA) but Pakistan will have to give assurances to the IMF in writing that the provinces would not plunge into procurement of wheat.

The IMF has shown its willingness to augment the existing $7 billion Extended Fund Facility (EFF) with climate finance under RSF, which will be presented before the Fund’s Executive Board for getting approval along with the request for release of the second tranche. It is not yet known exactly about the size of funding under the RSF but it is expected that up to $1 billion will be provided for Climate Resilience Fund (CRF). Pakistan’s Finance Minister Muhammad Aurangzeb also hoped last Friday that both sides would be heading towards striking a Staff Level Agreement soon.

The IMF’s Resident Chief in Pakistan Mahir Binci contacted this scribe and stated that “The IMF has not agreed on a lower withholding tax on property transactions and on lowering March 2025 targets”. On lowering the March 2025 tax collection target, the official sources said that the FBR could not achieve the ongoing monthly target at any cost and whether agreed by the IMF or not, it would be facing a shortfall in achieving the desired target of Rs1,220 billion for this ongoing month.

According to the FBR’s internal working, it might face a dent in revenue collection in the range of Rs60 to 80 billion owing to an increased number of holidays by the end of the ongoing month due to Eid ul Fitr. So, it was suggested to the Ministry of Finance and the IMF that the shortfall of Rs60-80 billion might be shifted in the revenue collection target for April and May 2025, instead of June 2025 because there would be higher tax collection for the last month of the current fiscal year.