IMF okays waiving 18pc GST on new planes if PIA privatised

The International Monetary Fund (IMF) has approved the exemption of the 18% general sales tax (GST) levied by the Pakistani government on acquiring new aircraft, contingent upon privatizing PIA.

This was stated by the chairman of the privatization commission during a parliamentary committee meeting.

Pakistan aims to divest a 51-100% stake in the financially troubled PIA to generate revenue and reform state-owned enterprises, in line with a $7 billion program established by the IMF. The final bidding process for the airline's privatization in October yielded only one bid of $36 million for a 60% stake in the national carrier.

Initially, six groups were pre-qualified in June; however, only Blue World City, a real estate development firm, participated in the bidding, submitting an offer that fell short of the government's minimum price of 85 billion Pakistani rupees.

Potential bidders have expressed concerns regarding policy stability, contract adherence, inconsistent government communication, unfavorable terms and taxes within the sector, as well as the airline's historical challenges and reputation.

Officials report that PIA's total losses are nearing $3 billion, with the airline's asset valuation estimated at around $572 million.

"In the previous bidding round, bidders suggested the elimination of the 18% GST on the acquisition of new aircraft and fleet expansion," the chairman of the privatization commission informed the National Assembly Standing Committee on Privatization on Monday, as per a press release.

"They argued that abolishing this tax would facilitate the procurement of new aircraft and bolster the growth of the aviation sector."

The government conveyed these concerns to the IMF, which concurred that the removal of the 18% GST could be implemented to promote private sector investment in new aircraft, contingent upon PIA's privatization, according to the press release.

PIA’s liabilities currently stand at Rs45 billion ($162 million), and the government says it is developing a strategy to address these financial burdens and ensure they do not deter potential buyers.