Tough IMF conditions
The IMF loan conditions continue to take their toll on Pakistan, with recent reports suggesting income tax rates for upper-middle-income earners and above, as well as continuing increases in energy prices. FBR Chairman Asim Ahmad has in a recent statement admitted that while the government is trying to protect people with salaries below Rs200,000 per month from any further tax increases, the IMF is already objecting to the tax cuts for middle and low income earners contained in the Federal Budget 2022-23. He also conceded that this could lead to a massive tax hike for the wealthy because there are a small number of salaried people around who earn in excess of Rs200,000 per month.
The small base of high earners cannot feasibly be taxed enough to meet the IMF target of collecting an additional Rs120 billion from salaried persons, especially when we consider that last year, taxes on salaried people only generated Rs150 billion, and the increased exemption figure means that more than 60 per cent of taxpayers from last year will pay no taxes in the coming year. At present, the government seems to be mulling raising tax rates beyond those announced on people who make more than Rs300,000 per month. The IMF is also worried that the federal government’s claimed surplus budget — another of the Fund’s demands — is untenable because it doesn’t match up with the provincial budgets presented so far.
Meanwhile, as financial managers continue to withdraw energy subsidies, the international lender appears to be putting on pressure to move faster. As painful as that would be, it is not really something Islamabad can ignore. Finance Minister Miftah Ismail has already warned that Pakistan will probably default if subsidies are not entirely withdrawn by next month. He went on to blame the PTI government for the current situation as they were the ones who accepted the tough IMF conditions, which the PML-N government now has to honour.
Miftah also announced another fuel price hike this week — Rs24 on petrol and Rs16 on diesel — blaming rising international oil prices, although technically, the hike was meant to eliminate the subsidy on petrol and cut the diesel subsidy. This latest hike in oil prices is the third announced in just 20 days. Keeping in mind that international prices usually rise over the summer, even in the best-case scenario, we can only expect relief if they stagnate. Even then, the remaining fuel subsidy of Rs43 on diesel still needs to be withdrawn. However, the government plans to introduce more measures to provide relief to lower-income groups from the excruciating impact of rising fuel prices, although few concrete proposals have been publicised thus far. The one measure announced so far only means a meager Rs2,000 a month cash handout for people earning less than Rs40,000 a month.
There is a desperate need for quick planning of economic relief packages that do not fall foul of the IMF. Unfortunately, while the government is proving to be capable of making tough decisions, decisiveness is another matter.
Published in The Express Tribune, June 17th, 2022.
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