ISLAMABAD: An IMF study has highlighted the impact of unrecovered value-added tax on businesses, saying the cost of inputs can rise by as much as 8.9% in some sectors.
The findings were discussed during a session on tax reforms and economic growth.
According to the study, unrecovered VAT can increase production costs by between 2.3% and 8.9% of input value, depending on the sector.
The IMF said exemptions and incomplete systems for claiming input tax credits can reduce the neutrality of VAT and distort business decisions.
The affected sectors include manufacturing, construction, utilities, real estate, finance and insurance, information and communication, and accommodation and food services.
The study also highlighted the cost impact of corporate taxation, which can raise the cost of capital by 15% to 19%.
For emerging and developing economies, the IMF recommended improving VAT neutrality, avoiding tax thresholds that discourage businesses from expanding and strengthening tax administration.
It said better-designed VAT systems could lower production costs and improve economic efficiency.
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