Pakistan, IMF open bailout talks today

Islamabad to initiate technical level discussions based on data and statistics

ISLAMABAD: Pakistan and International Monetary Fund (IMF) will formally begin talks on a three-year bailout package for economic reforms from Monday (today).

The IMF mission led by the director for the Middle East and Central Asia Ernesto Meris is scheduled to reach Pakistan on Monday (today) with an expected stay until May 7.

The review mission will analyze economic data and engage in policy level discussions with Adviser to PM on Finance Dr Abdul Hafeez Shaikh during which terms and conditions of the programme will also be determined. If successful, the mission will sign a letter of intent with Pakistan.

According to details, the ministry of finance has finalized the summary of data obtained from various institutions including the Federal Board of Revenue (FBR) for talks with IMF.

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The Pakistan team led by Finance Secretary Yunus Dhaga will engage with IMF delegation for technical level discussions based on data and statistics for the first nine months of the current fiscal year.

The IMF mission will be briefed over the progress of economic targets to reach a consensus and presented with the recommendations for the federal budget for the next fiscal year 2019-20, while budget strategy paper and mid-term economic framework will also be discussed.

The IMF has been pressing Pakistan to increase its tax-to-GDP ratio to 13.2 percent.  Sources say that Pakistan has assured IMF of raising its tax collection to 12.7pc of GDP.

The government is expected to hold an extensive discussion on revenue framework according to which new taxes amounting to Rs729 billion are being considered for the next federal budget.

The framework also proposes tax relief for the exports and manufacturing sector. It is expected that an increase of 1.4pc in taxes of GDP would be made during the next year.

In addition, revenue amounting to 0.3pc of GDP will be made after improvements in tax administration and enforcement.

As per budgetary recommendations, additional collections from Inland Revenue taxes will be Rs634 billion while Rs95 billion in customs duty.

For Inland Revenue, Rs334 billion are expected to be additionally imposed under the bracket of income tax while new taxes amounting to Rs150 billion each is considered under the heads of sales tax and federal excise duty (FED) while Rs95 billion in additional customs duty are also under review.

The IMF mission will also be briefed on the increase in electricity tariff, purchasing power of rupee and change in the terms and conditions for a loan adjustment.

However, the biggest challenge here is to brief the mission about loan arrangements made from China, sources said, adding that the mission will be told about the strategy to deal with the Rs350 billion shortfall in revenue collections during the first nine months of the current fiscal year.

The mission will be briefed about additional revenue after the restoration of mobile taxes by the Supreme Court while probable collections from amnesty scheme and the subsequent documenting of the economy will also be discussed.

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The mission will also be informed about the proposal for increasing the withholding period for capital gain tax on securities and immovable property. If implemented in the budget, the proposal will generate additional revenue of Rs20 billion while another recommendation for imposition of presumptive tax on offshore assets is also being reviewed with an expected tax collection of Rs5 billion.

A proposal for increasing the tax rate on custom duty may additionally contribute Rs47 billion in revenue while slabs of customs duty may also be rationalized after which additional Rs24 billion in taxes may be generated.

In addition, the recommendation for withdrawal of waiver in customs duty for LNG is also in the pipeline with a probable 5pc duty which can generate additional revenue of Rs24 billion.