MULTAN: In a pivotal move aimed at overhauling the tax framework, the government has announced the repeal of remaining income tax exemptions for donations and non-profit organizations listed in the Second Schedule of the Income Tax Ordinance (ITO). This change will enable these entities to qualify for tax credits, as detailed in the recent IMF staff report under the Extended Fund Facility (EFF).
The report emphasizes the need for tax policy reforms focused on simplifying the collection process and broadening the tax base. Over the next three years, the government has committed to a series of measures designed to streamline tax policies.
A significant aspect of this initiative involves enhancing the Annual Tax Expenditure Report to include a chapter evaluating the costs and benefits of existing tax incentives. This review will allow for the repeal of tax credits and exemptions deemed inefficient, while ensuring that any new concessions are supported by comprehensive cost-benefit analyses.
“As we pursue a transformation of direct taxation, we will amend the ITO to ensure fair taxation across all income sources. The repeal of the remaining exemptions for donations and non-profits will align them with tax credits, marking a crucial step in our reform agenda,” a government official stated.
In addition to these changes, the government plans to implement a single turnover-based registration threshold for businesses by FY27. Under this system, businesses exceeding the threshold will be required to register for both income tax and sales tax, thereby promoting a more streamlined approach.
The government also reiterated its commitment to simplifying the Goods and Services Tax (GST). By FY26, it aims to establish a unified reduced rate, reclassifying products currently taxed at 5% GST to the 10% category by FY25. Ultimately, the goal is to transition the GST into a broad-based Value Added Tax (VAT), enhancing efficiency in tax collection.
These reforms underscore the government’s commitment to creating a more equitable and effective tax system, in line with the objectives outlined in the IMF report.
