The International Monetary Fund (IMF) has approved waiving the 18% sales tax on aircraft leases for Pakistan International Airlines (PIA), removing a major obstacle to its privatization. The IMF also allowed parking more liabilities in a holding company, addressing another challenge to the process. This agreement could revive PIA’s privatization efforts, which had stalled after an initial failed attempt earlier this year, when a developer offered far below the required price for a 60% stake.
The government’s decision to divide PIA into two entities, placing around Rs623 billion of liabilities in a holding company, was key to restarting the privatization. However, bidders demanded the waiver of sales tax and a write-off of Rs45 billion in liabilities, which had caused previous negotiations to collapse.
Finance Minister Ishaq Dar received an update on the process from the Privatisation Commission and discussed the latest developments. The IMF’s consent allows for tax waivers on aircraft for international routes, ensuring foreign investors are not disadvantaged. The next step involves finalizing the sale structure and addressing the remaining challenges. Additionally, the government has been negotiating the sale of non-core PIA assets like the Precision Engineering Complex to the Pakistan Air Force.
While the privatization process is back on track, concerns remain regarding the remaining liabilities and the balance sheet cleanup needed to make PIA an attractive investment. The government also continues to evaluate its advisory arrangements amid criticism over previous transaction structures.
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