Pakistan Assures IMF of New Taxes Worth Rs.300 Billion

Pakistan Government Assures IMF of Increased Tax Revenue and Economic Reforms:

The government of Pakistan has recently given assurance to the International Monetary Fund (IMF) of increasing revenue and reducing expenditure through energy conservation, fiscal austerity, and economic and energy sector reforms. Through the Tax Laws Amendment Ordinance 2023, the Federal Board of Revenue (FBR) has proposed new tax measures worth about Rs.300 billion to the IMF. As a result, five to five and a half billion rupees worth of additional revenue and non-tax revenue measures have been proposed.

IMF's Concerns Over Pakistan's Economy:

According to sources, the IMF has expressed concern over the delay in economic reforms, increase in debts, inflation, and decrease in foreign exchange reserves, which pose a threat to Pakistan's economy. The IMF has emphasized the need for a wider political consensus for reforms.

Proposal for New Tax Measures:

The government has assured the IMF of steps to raise revenue next week, including a proposal to increase the federal excise duty on cigarettes, beverages, and air tickets to 50 paise per stick of excise on cigarettes. It has also been proposed to increase the tax on energy drinks and impose a levy on the income of banks. In total, additional revenue measures of around 300 billion rupees have been proposed, and revenue measures will be added according to the agreed measures.

Revised Debt Management Plan:

In the meeting with the IMF, the revised debt management plan to reduce the circular debt of the power sector, the increase in electricity and gas prices, and other issues were discussed. The IMF was informed that the revised circular debt management plan has been prepared, approved, and sent to the Economic Coordination Committee (ECC) for implementation. The IMF was also informed that the summary of refinancing for payment of markup to Power Holding Company for the reduction of revolving debt and repayment of revolving debt of 285 billion rupees has also been sent to the Implementation Coordination Cell (ICC).

Reducing Subsidies and Improving Recovery:

The IMF has urged Pakistan to improve recovery while cutting back on subsidies and electricity loss. The government has proposed a phased increase in the price of electricity by 7.5 to 10 rupees per unit. According to the Ministry of Finance officials, the electricity tariff is proposed to be increased by Rs. 3 per unit till March, while it is proposed to increase by another 70 paise by May. The price of electricity may be increased by Rs. 6 per unit in a phased manner till August 2023. The government proposed a subsidy of up to 300 units rather than 100, while the IMF demanded a reduction in the electricity subsidy.

Circular Debt Reduction and Subsidy End:

In the current financial year, the circulating debt will be reduced by 952 billion rupees, and there is also a plan to end the subsidy of 675 billion rupees. 200 billion rupees will be paid from consumers by increasing the tariff. Implementing the conditions agreed with the IMF is in progress, under which the notification of rules regarding the disclosure of assets of government officials has been issued. Instead of Rs.3 lakh, Rs.5 lakh has been issued for asset disclosure, and almost all new people have also been included in the tax net. Additionally, the January tax collection goal was met.

Conclusion:

The ongoing negotiations between Pakistan's economic team and the IMF on the Ninth Economic Review are showing bright prospects for an agreement. The government of Pakistan has assured the IMF of its commitment to economic and energy sector reforms and increasing revenue through new tax measures. The revised debt management plan and the proposal for reducing subsidies and improving recovery on electricity have been discussed and approved. The implementation of the conditions agreed with the IMF is underway