Pakistan and IMF continue to disagree on taxes. The IMF has shared its list of Memorandum of Economic and Financial Policies (MEFP) with Pakistani authorities for discussion. But to finalize the exact measures of taxation, basic tariff for electricity. There is still disagreement on the increase and access to overall external financing.
The list under consideration proposed in the MEFP under discussion among policy makers in Islamabad for the past two days.
IMF insists on “permanent tax measures”. The Pakistani side will hold virtual talks with the IMF on Monday (today) to finalize specific tax measures.
Resolve the long-standing dispute over power base tariffs and include the overall external financing requirements. And Net International Reserve (NIR) target for the end of June 2023. It is not yet known how long it will take the two sides to resolve these long-standing issues.
Speaking to The News, top government sources confirmed that the IMF shared its list. And virtual talks will begin from Monday evening to finalize the details on relevant key issues.
Once the issues regarding the implementation of taxes are settle, an agreement will reached at the staff level. Everything is now on the list and open for discussion to finalize the steps. But the question arises as to what the authorities did in the last ten days of talks with the IMF review mission while it staying here. But no conclusion could drawn here. The IMF is opposing all measures that are on-off.
The IMF is insisting on “sustainable revenue measures” including raising the GST from 17 to 18 percent. Imposing GST on POL products and increasing the petroleum levy on energy. The Tax Laws Amendment Ordinance 2023 is expected to promulgated within this week possibly from February 15, 2023 to generate an additional tax of Rs 170 billion in the remaining four and a half months of the current financial year.
IMF conditions
Increasing the GST rate by 1 percent to 17 to 18 percent will yield 60 to 65 billion rupees. And increasing the withholding tax on banking transactions to 45 billion rupees. Increasing the Federal Excise Duty (FED) on beverages (it is now under consideration). Increase in FED on locally manufactured and imported vehicles and increase in FED on cigarettes etc. Some of the proposals hotly debated between the two sides and at one stage a special assistant to the prime minister had to step in to calm the emotional atmosphere. As a Pakistani participant argued before the IMF mission last week. Why is the Fund Mission calling for all sorts of “regressive tax measures” amid mounting inflationary pressures?
In the power sector, the IMF called for a hike in the base tariff. As the government approved a revised Circular Debt Management Plan to bring down the baseline scenario to reduce the debt pile.
The revised CDMP did not say anything on the increase in base tariff as the Pakistani authorities argued that they had done it last August 2022. But the IMF did not agree and asked to increase the base tariff by Rs 4.06 per unit.
External Financing
On gross external financing and NIR target, a senior State Bank of Pakistan official tell The News that the NIR target for the end of June 2023 is yet to agreed with the IMF.
Official sources said that the most complex issue facing Pakistan’s economy is to ensure its ability to meet external financing needs to increase foreign exchange reserves from the current level of $2.9 billion by June 30, 2023.
The last IMF review in August/September 2022 pegged the foreign exchange reserves held by the State Bank at $16.2 billion by the end of June 2023, but it seems impossible to bring it to that level. This is the most important point as Pakistan anxiously awaits the implementation of the promises made by Saudi Arabia, UAE, Qatar and China.
These countries say that if Islamabad is under the IMF program, they will support Pakistan, while the IMF says that it will enter the program only when these countries give assurances of assistance to Pakistan. . Both are calling for Pakistan’s support, yet it is not known how the issue will be resolved in the coming days and weeks