IMF blocks tax relief on education

Pencils, books remain taxed; import age limit lifted for cars meeting standards

The government said on Tuesday that taxes on the import of used cars have been reduced. the age limit lifted, but it could not get permission from the International Monetary Fund (IMF) to exempt sales tax on children's pencils and exercise books – statements that reflect the nation's priorities.

In a briefing to the Senate Standing Committee on Finance. Secretary Commerce Jawad Paul said that as part of commitments with the IMF, the restriction of importing only up to five-year-old vehicles is lifted from July, subject to meeting environmental standards.

He further said that additional regulatory duty will also be reduced from 40% to 30% by next month.

The restrictions on the import of used cars are being eased in a phased manner as part of conditions by the IMF. which wanted to provide equal opportunities to foreign nationals to sell their old cars to Pakistan.

Pakistan Peoples Party (PPP) Senator Saleem Mandviwalla chaired the senate standing committee meeting. The National Assembly Standing Committee on Finance also started reviewing the Finance Bill. Unlike the Senate Committee. which does not have a binding say on the budget, the National Assembly Committee, headed by PPP's Syed Naveed Qamar, has the authority to accept or reject any budget proposal. However. in a separate statement also made at the Senate Committee, Director General of the Tax Policy Office Dr Najeeb Memon said that the IMF has rejected any tax exemption for the education sector.

"The IMF has opposed tax exemption for the promotion of education in Pakistan. did not agree to the proposal of keeping the stationary goods exempted from the sales tax," said Memon.

Tax exemptions cannot be given on all the necessities of life, he said.

In the last budget, the government imposed 18% sales tax on pencils, including colour pencils, geometry boxes, pencil sharpeners, exercise books, glues. adhesives put up for retail sale for student use. These significantly increased the prices of these products at a time when Prime Minister Shehbaz Sharif has declared an education emergency in Pakistan.

The Finance Bill 2026-27 unfortunately leaves these basic. essential items unaddressed, even as other socially sensitive products – contraceptives and sanitary pads – have rightly been exempted from all taxes and duties in the budget.

Finance Minister Muhammad Aurangzeb, who attended meetings of both committees, also ruled out any tax concession for the beverages sector. He did not accept the proposal of cutting the federal excise duty by 5% on beverages in return for enhancing revenues by Rs8 billion over this year's collection. Dr Faisal Hashmi had given the proposal on behalf of the beverages industry.

The finance minister also refused to further reduce taxes on exports, saying the government had already given enough relaxations in the shape of reduction in advance income tax, ended super tax on exports. kept the interest rates for exporters at only 4.5%.

The government should have increased the fixed income tax rate for exporters instead of bringing them under the normal regime. said Senator Mohsin Aziz of the PTI. He apprehended that there would be a further reduction in exports in the next fiscal year. as the policies were still not conducive for business.

The secretary commerce informed the Senate committee that under the five-year national tariff policy. the simple average tariffs are targeted to reduce to 13% from July. However, he said tariffs would be 13.77%, still higher than the target due to relatively less reduction in the last year. adjustments because of some of the pain points of the industry. Last year, the government cut tariffs to 16.56%.

Jawad said that for the next fiscal year, major changes are made in the regulatory duty structure. Except for alcohol, where the duty will still be 90%, the remaining duties have been brought down to 20%. He said the federal cabinet decided to keep the duty rate unchanged for alcohol. although the import of the drink is banned in Pakistan.

The total revenue impact of the duty reduction during the second year of tariff reforms is Rs143.4 billion for the next fiscal year. said the secretary commerce.

NA Committee proceedings

The National Assembly Standing Committee on Finance approved new powers for a special judge to freeze the properties. assets of an accused person under trial, whether those assets are held in his name or by others. The powers have been given under the Customs Act.

The government had proposed that where a special judge during trial of an offence punishable under the Customs Act is satisfied that there are reasonable grounds for believing that the accused has committed an illegal transfer of funds into or out of Pakistan. he may order the freezing of the assets of the accused, whether in his possession or in the possession of any other person on his behalf.

The FBR officials informed the committee. the Anti Money Laundering Authority had suggested the insertion of an explicit provision declaring void any action that prejudices the legal power to freeze property liable to confiscation. This will cover any transfer, arrangement or dealing undertaken with the intent to defeat or frustrate any subsequent confiscation of properties. assets.

"NAB also has similar powers," said Hamid Ateeq Sarwar, member strategic transformation of the FBR. "NAB's law is a black law," said MNA Sharmila Faruqi. on whose recommendation the committee added a safeguard for the protection of the third party who might be holding the assets of accused persons as payables.

The standing committee also approved ending the requirement of having debit or credit cards for the small traders who would benefit from the government's new fixed scheme. The FBR was aiming at bringing 100,000 large traders into the net. so far only 37,000 have been brought in, confessed Sarwar. To a question, he said that by ending the requirement of debit. credit card machines, over 500 traders who are already considered large traders might be excluded from the net. But he assured the committee he would share the exact figures in the next hearing.

The NA standing committee refused to give the FBR the authority to exclude any class of traders from the category of large traders. Syed Naveed Qamar asked the FBR to address the reasons. create confusion about the status of a trader instead of getting powers that can be misused by the FBR.

The standing committee also deferred a vote on another controversial proposal to charge Rs30 per unit of electricity sales tax from steel melters. re-roller mills. There have been divisions within the sector on whether the new tax should be charged.

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**Author: National Tariff Policy**