Finance Minister Shaukat Tarin declared on Thursday that the International Monetary Fund’s conditions to increase electricity prices and slap Rs150 billion taxes on the salaried class are a “redline” for Pakistan, saying the talks with the global lender may prolong.
“The IMF has asked to increase personal income tax and power tariffs but we cannot put any additional burden on the poor people and the salaried class,” the finance minister said while responding to a question about the status of Pakistan-IMF talks that are continuing for two weeks.
“Putting more tax burden on the salaried class and increasing tariffs for the poor on the IMF’s demands is redline for Pakistan,” Tarin said while speaking at the launching ceremony of the Pakistan Economic Survey 2020-21.
Tarin’s comments came the day The Express Tribune carried a story that the IMF was not showing any flexibility in its condition on personal income tax. The inconclusive talks may overshadow the budget presentation, as Pakistan dearly remains in need of loans from the IMF and other international creditors.
The minister said that the IMF asked Pakistan to impose Rs150 billion worth more personal income tax. The salaried class is paying Rs113 billion annually in income tax, he added.
The IMF is putting pressure to increase electricity prices but the prime minister has said that there will not be any increase in tariffs at all, Tarin said.
“If no consensus is achieved in a day or two, the IMF Executive Board Meeting to approve the sixth review of the programme may be delayed till August,” the finance minister said after the news conference.
As per the original schedule, Pakistan’s case is planned to go to the board next month.
Pakistan has already increased the annual base tariff by Rs1.95 per unit in March to qualify for the $500 million loan tranche in addition to increasing prices under quarterly tariff adjustment mechanism.
The IMF is holding talks under the sixth review of the $6 billion three-year bailout programme that were initially expected to conclude on Thursday. The talks were held to secure the IMF’s approval for the next budget and an agreement for the sixth review (January-March period).
The successful culmination of talks will pave the way for an approval of over $1 billion loan tranche by the IMF Executive Board.
The IMF is applying “cookie cutter approach”, which was not acceptable, Tarin said.
He maintained that Pakistan and the IMF had the same goal of “sustainable growth” but the difference was only on the method to achieve it.
“We have accepted to increase tax collection to Rs5.8 trillion next year from Rs4.7 trillion this year but we want to do it in our own way,” he added.
The Express Tribune reported that Pakistan offered the IMF to collect Rs242 billion through administrative measures but the IMF was not willing to accept it.
To a question about poor quality of revenue collection, which was highly dependent on indirect taxes, the minister said that he agreed with this assessment but all nations initially relied on indirect means of taxes.
Our long-term objective is having progressive taxation through income tax and sales tax and all the withholding and turnover taxes will be abolished, the finance minister said.
“I will broaden the tax base and from next year there will be self-assessment by the taxpayers and the FBR will not serve tax audit notices,” the minister said. Only 3% to 4% cases will be selected for audit that will be performed by third party instead of the FBR, he added.
“The self-assessment by the taxpayers will begin and the FBR’s harassment will end from the next fiscal year.”
Tarin warned, however, that willful non-filers of the income tax returns will be thrown behind bars.
The global agency asked Pakistan to increase income tax and tariff, however, “we cannot increase both”, he clarified, adding that discussions with the IMF are still under way.
The finance minister also rebutted The Financial Times story, which quoted him as saying that Pakistan was leveraging its cooperation with the US military to win concessions from the IMF.
“Let me clarify … it was an hour-long interview based on some 19 points, and there was just one mention of the US wherein the interviewer asked about Pakistan’s relations with America, to which, I responded that the US has earmarked some amount for our military training.
Besides, neither have they reserved any other allocation nor do we want it,” he explained, in response to a question after presenting the Pakistan Economic Survey 2020-21.
The Financial Times, in its story, quoted Tarin as saying that military cooperation with the US over America’s withdrawal from Afghanistan had given Imran Khan’s government “some space” to delay unpopular IMF reforms.
The minister said the interviewer also asked him about the progress of Pakistan-IMF negotiations, saying, “Even in that response, I didn’t make any mention of the US.”
He reiterated that the publication “tried to link that point with another story and we are issuing its rebuttal today”.
The IMF's resident representative did not respond to the question whether the fund was acting as a foreign policy tool of the US government.