ISLAMABAD: The International Monetary Fund (IMF) has rejected the Pakistani government’s proposal to impose a Capital Value Tax (CVT) on movable assets such as gold, cash, and other valuables, according to official sources involved in budget negotiations.
The IMF also dismissed a contentious plan to impose a Federal Excise Duty on day-old chicks, citing concerns over feasibility and fairness.
However, the Fund has approved a new tax on digital services, projected to generate approximately Rs10 billion in revenue for the upcoming fiscal year.
Key Proposed Tax Measures Under Review
As part of preparations for the 2025–26 federal budget, officials are evaluating several additional tax adjustments, including:
- Raising the withholding tax on mutual fund dividends to 20%
- Increasing the withholding tax on interest income to 20%
- Ending tax exemptions for venture capital firms
- Removing income tax relief currently extended to the cinema industry
The IMF has opposed any reduction in the top income tax bracket of 35%, and it has insisted on retaining the 10% income surcharge on monthly earnings above Rs500,000.
However, the Fund supported reducing tax rates for middle-income groups, and hinted at limited relief for those earning below Rs500,000 annually.
Although the government proposed raising the income tax exemption threshold to Rs1.2 million, the IMF rejected this move. It did, however, allow for the possibility of lowering the initial tax rate from 5% to 1% for low-income earners.
Budget Presentation Timeline
The federal government has briefed Prime Minister Shehbaz Sharif on the initial contours of the budget. The complete Budget 2025–26 will be presented in the National Assembly on June 10, while the Pakistan Economic Survey will be released a day earlier, on June 9, coinciding with the third day of Eid-ul-Adha.
The IMF has directed that the upcoming budget be drafted in full alignment with the Staff-Level Agreement (SLA) recently concluded between Islamabad and the Fund. The budget must be approved by Parliament by the end of June to ensure the release of the next loan tranche.
