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IMF Pressuring Pakistan to Implement Extra Taxes.

 

IMF Pressuring Pakistan to Implement Extra Taxes.

IMF pressures Pakistan for Rs 600 billion in additional taxes, task.

According to officials in the administration, IMF Mission Chief to Pakistan Nathan Porter presented the demands and a dozen other requirements to the Pakistani authorities during recent meetings in Washington.

According to Insiders

The subject is to cover during the subsequent round of programme review negotiations, which is scheduled to take place in November.

The IMF believes that even if the FBR hits its yearly target of Rs7.470 trillion, the tax-to-GDP ratio would fall below the agreed level because inflation has caused the nominal growth of the economy to increase by close to 25% in the current fiscal year.

The government had calculated the GDP at Rs78 trillion at the time of the budget based on an average inflation rate of 11.5% and an economic growth rate of 5%. The annual tax target of Rs7.470 trillion is equivalent to around 9.6% of the GDP.

The expected GDP for the current fiscal year is pegged at Rs83 trillion following a jump in inflation. Despite reaching the FBR’s objective of Rs7.470 trillion annually, this would reduce the tax-to-GDP ratio to about 8.9%.

IMF Predict to Pakistan

The IMF predicted that Pakistan may need to take extra revenue measures equal to 0.75% of the GDP, or more than Rs600 billion, in order to adhere to the macroeconomic framework targets.

The government has set a target for the FBR’s yearly tax collection of Rs7.470 trillion, a 22% increase over the amount collected the year prior. During the first quarter, the FBR collected more than Rs1.61 trillion, exceeding its goal by more than Rs26 billion.

However, the collection’s growth rate was just 17%, which was much lower than the current inflation rate. Afaque Qureshi, a spokesperson and member of the Inland Revenue Policy, stated that “the FBR is not considering any plan to implement higher taxes.”

Such a proposal is extremely unlikely to grant by the coalition government led by the Pakistan Democratic Movement. Due to the rising cost of living, the primary alliance party, the PML-N, has already suffered the most damage to its supporter base and popularity.

According to the sources, one of the possibilities the IMF suggested was to implement a sales tax on petroleum items, but Finance Minister Ishaq Dar rejected any recommendations made by the IMF about particular taxes.

Currently

The government levies a petroleum charge tax of Rs47.50 per litre on gasoline and about Rs7.58 per litre on diesel. The IMF has also requested that the government continue to follow the agreed-upon strategy for applying the petroleum levy, which calls for an Rs. 50 per litre charge on gasoline in January 2023 and a Rs. 50 per gallon charge on diesel until March 2023.

The government is already very close to reaching the maximum threshold for gasoline, but in order to stay on schedule, it will now need to start raising taxes on diesel starting next month.

According to the sources, the IMF has also asked Pakistan to inform a task force against corruption, which the government had promised to do in June of this year.

Task Force

A task force composed of independent experts with international experience, civil society organisations, and Pakistan will publish a thorough review of the anti-corruption institutional framework by January 2023, specifically the National Accountability Bureau (NAB), in accordance with the agreement.

According to the Agreement

The task force will also suggest structural reform measures that will increase the independence of institutions tasked with combating corruption, shield them from political influence and retaliation, and set up controls for accountability and transparency to guard against abuse.

Former Prime Minister Shahid Khaqan Abbasi’s name was suggested to lead the task team before Finance Minister Ishaq Dar joined. However, no choice had made.

Former Finance Minister Miftah Ismail stated, “Shahid Khaqan Abbasi’s name had recommended leading the task force, but in my view, a foreign expert with a strong legal background, ideally from New Zealand or Singapore, should head the committee.” These nations are thought to have very low levels of societal corruption.

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