IMF urges Pakistan to limit tax exemptions for international investments

ISLAMABAD: The International Monetary Fund (IMF) urged the Pakistan’s Special Investment Facilitation Council (SIFC) to refrain from granting tax exemptions to international investment projects, including the Chaghi-Gwadar railway track project worth $2 billion.

The IMF’s stance comes as Pakistan seeks to secure the next $1 billion tranche under the $7 billion Extended Fund Facility (EFF). According to sources, the IMF delegation maintained that tax exemptions for international investments would hinder the country’s revenue generation.

According to sources, the government had requested Gulf countries to invest in the Chaghi-Gwadar railway track project, but the IMF has refused to grant tax exemptions to the SIFC for international investments. The SIFC has been providing a platform for investment and facilitating the transportation of minerals from Reko Diq to Gwadar through a new railway line.

Briefing the IMF delegation, officials stated that a platform is being provided to facilitate investment, and a new railway line will be constructed to transport minerals from Reko Diq to Gwadar.

The government has sought investment from Gulf countries worth $2 billion for the construction of a railway track from Chaghi to Gwadar. The Ministry of Finance, Railways, and SIFC have conducted a feasibility study for the project.

However, Gulf countries have also demanded government guarantees for their investments, which Pakistan is hesitant to provide due to its existing loan program commitments.

SIFC officials briefed the IMF delegation on investment, governance, and structure. Negotiations between the Ministry of Finance and the Law Ministry will continue to amend the Sovereign Wealth Fund.

Read More: Pakistan, IMF begin policy talks for $1 billion loan tranche

Earlier on Tuesday, it was reported that Pakistan  convinced the IMF to slash the electricity rate by two rupees per unit

Pakistan and the IMF have commenced policy-level talks for the disbursement of $1 billion loan tranche under the ongoing loan package.

The officials held a lengthy session of talks with the IMF team to cut the electricity tariff by 1.5 to two rupees per unit, according to sources.

“Final decision to slash basic tariff of electricity will be held in the next month”. According to sources, the IMF has in principle approved cut in the basic tariff of electricity.

“Pakistan has to submit a comprehensive privatization plan of distribution companies (Discos) to slash the power tariff,” sources shared.

The IMF has been dissatisfied with the performance of Discos and expressed concern over losses of the power distribution companies.

The IMF team has pointed out below par performance of the distribution companies as the main hurdle in reforms in the energy sector, sources shared.