After International Monitory Fund (IMF) and stakeholder resistance, the government dropped plans for a flood tax on imports and a one-time levy on bank deposits.
The Finance Ministry intends to earn billions of rupees of new revenue to which the federal government has exclusive rights, a very regressive move in the financial industry. However, the government bowed to the IMF, and State Bank warned against harsh measures due to their negative effects on the economy and banking sector.
Pakistan also proposes to levy a 1% to 3% flood tax on imported goods, which violates its World Trade Organization (WTO) and the General Agreement on Trade and Tariff (GATT).
The Finance Ministry initially proposed the two recommendations as part of eight to 10 measures to raise tax collection by Rs 17,000 crore in four months and above Rs 5,000 crore annually.
A senior finance minister said both plans were removed. However, Finance Minister Ishaq Dar stated in a press conference on Friday that the administration will choose tax areas from eight to 10 points.
The list includes a 0.6 percent withholding tax on cash withdrawals from unregistered persons and a 1 percent VAT rise to 18 percent. In four months, 1% GST will generate Rs 700 crore.
Despite State Bank’s resistance, the government may reinstate the 0.6% cash withdrawal tax. This may improve money circulation.
Cash withdrawal and deposit taxes are regressive and violate the idea of income tax fairness. But, unfortunately, the Federal Revenue Service and the Pakistan Muslim League-Nawaz government have historically supported such policies.
The Finance Ministry’s special one-time bank deposit levy may force consumers to retain their money outside the banking system. In addition, a 0.6% deposit withholding tax is still under consideration, which might improve money circulation.
In December 2022, SBP data showed Rs 22.5 trillion in banking system deposits. This comprises Rs 10.5 trillion in salaried, entrepreneur, and other personal deposits.
The insider stated the administration aims to target just high-savers. This shows that the Ministry of Finance prioritizes tax income over economic effects.
After the visit, the IMF called for “permanent” revenue initiatives that would quickly raise taxes and resist legal scrutiny. Sources said the government and the IMF planned to establish a flood tax of 1% to 3% on imported products to earn Rs 60-700 crore. IMF disapproves. The Treasury converted a 1% to 3% rate into a fee to keep money out of the provinces.
The provinces and centers split “import duties” from the federal distributable reserve. The “tax” is federal and not shared with the provinces.
Sources claimed the IMF held detailed meetings with WTO, trade, and finance ministry representatives. The meeting agreed that a flood charge would violate WTO rules.
An IMF customs official said “tax” is not a tariff. Therefore, imports cannot be discriminated against without taxing local items.
The General Agreement on Trade and Tariffs does not apply internal taxes or other internal charges to products imported from one Contracting Party to another.
 and stakeholder resistance, the government dropped plans for a flood tax on imports and a one-time levy on bank deposits.){kind=link}