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Construction sector: IMF asks FBR to abolish special tax regime

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The International Monetary Fund has recommended that the Federal Board of Revenue (FBR) abolish the special tax regime for the construction sector and bring it into the regular income tax regime.
Sources told RP that the tax-related issues were discussed during the first meeting between the IMF team and the FBR high-ups on the second review of the Stand-by Arrangement (SBA). The introductory meeting was held between the tax authorities and the Fund’s team on Thursday evening.
The IMF and the FBR team meetings will continue on Friday (Mar 15).
The sources stated the Fund has recommended phase-out as quickly as ticably possible of the special tax regime for the construction sector and subjecting the industry to the standard income tax regime.
The IMF has also recommended the repeal of the discretionary power of the FBR to grant tax incentives for industrial undertakings and the discretionary power of the Cabinet to award tax incentives.
If tax incentives are granted in the future, they should be time-bound and subject to regular assessment of costs and benefits. If fees are higher than expected initially and benefits lower, incentives should be immediately withdrawn, the sources said.
The IMF has also recommended repealing remaining exemptions for donations and non-profit organizations contained in the Second Schedule of the Income Tax Ordinance and making them eligible for tax credits.
The Fund has recommended reviewing the charitable donations tax credit and the credit for certain persons to assess whether changes to eligibility requirements would be desirable.

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