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IMF Demands Further Increase in Taxes

October 08, 2021

The International Monetary Fund (IMF) has asked Pakistan to increase its annual tax collection target from Rs5.8 trillion to Rs 6.3 trillion by enacting additional taxation measures such as income tax, sales tax, and regulatory duty (RD).In its South Asia Economic Focus titled “Shifting Gears: Digitization and Services-Led Development,” the World Bank (WB) has lowered Pakistan’s GDP growth prospects to 3.4 percent for the current fiscal year as the government refocuses on mitigating external pressures and managing long-standing fiscal challenges, projecting the region to grow by 7.1 percent in 2021 and 2022.

The IMF has made a new demand during the ongoing virtual talks, citing losses of over Rs600 billion due to non-collection of the petroleum levy during the current fiscal year. According to the official, the government will have to take additional revenue measures on the FBR front to close the gap that has arisen as a result of the non-collection of the petroleum levy.

The IMF also recommended a Rs1.40 per unit increase in the base price of electricity tariffs to combat the rise in circular debt.

Talks are underway, and both sides may reach an agreement on a staff-level agreement under which the FBR’s target for the current fiscal year could be increased from Rs5.8 trillion to Rs6-6.1 trillion as a result of the FBR’s increased collection at the import stage,” top official sources confirmed to The News on Thursday. According to official sources, the IMF also recommended raising the personal income tax rate by adjusting the higher income bracket earning Rs75 million per year. Various proposals are being considered to increase the personal income tax rate from 10% to 15% in order to raise an additional Rs100 billion to Rs150 billion.

The IMF wants to change the Nepra law so that automatic quarterly adjustments, both downward and upward, can be made without the need for government intervention. According to the IMF, the current rate of revenue collection by the FBR is unsustainable, so additional revenue measures are required to achieve fiscal sustainability. There are two major issues that need to be addressed: fiscal sustainability and the cash-flowing energy sector. Dr. Mohammad Ashfaque, Chairman of the Senate Standing Committee on Finance at Parliament House, said the ongoing talks with the IMF had not yet concluded, but the Fund staff was satisfied with the board’s collection.

He claimed that the FBR exceeded its revenue collection target by Rs186 billion in the first quarter, with Rs1,395 billion collected in the first three months of the current fiscal year. He predicted that the FBR’s annual tax target would be met. The IMF was briefed on direct and indirect taxes by FBR officials.

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