IMF Rejects New Tax on Cash, Gold, Allows Relief for Salaried Class

The International Monetary Fund has rejected Pakistan’s proposals to impose a capital value tax on movable assets (cash, gold, etc.) and a 5 percent federal excise duty (FED) on one-day-old chicks. The IMF did approve a tax on digital services aimed at generating Rs. 10 billion in revenue and supported a reduction in income tax rates for individuals earning less than Rs. 500,000 per month. However, it refused to increase the exemption threshold to Rs. 1.2 million and declined any relief for the highest income tax slab of 35 percent or the 10 percent surcharge on monthly incomes exceeding Rs. 500,000. The capital value tax proposal was turned down by the IMF because the government should focus on taxing income rather than wealth. The proposed tax on chicks was also rejected. The IMF criticised the move, noting that it contradicted claims about high food taxation and lacked a sector-wide analysis. Other measures under consideration include increasing the dividend income tax on mutual funds from 15 percent to 20 percent and raising the withholding tax on interest income from 15 percent to 20 percent. The government may also withdraw income tax exemptions for venture capital companies and cinemas. A proposed 5 percent excise duty on processed foods like chips and biscuits would raise the effective tax burden to around 29 percent after factoring in existing taxes. The IMF also pushed Pakistan to double the excise duty on fertilizer to 10 percent and to introduce a 5 percent duty on pesticides, despite opposition from the Prime Minister.