Govt plans Rs40b new taxes to appease IMF

The federal government has started preparations for bringing a mini-budget worth more than Rs40 billion to ensure meeting the tax collection target and fulfilling the preconditions set by the IMF for the release of two IMF tranches worth $1.17 billion.

Sources in the Federal Board of Revenue (FBR) confirmed that the government was eyeing to impose taxes on fertiliser, sugar and textile sectors, adding that an amendment in the finance bill would be made through a presidential ordinance before the Executive Board meeting of the Washington-based lender.

The FBR’s Inland Revenue wing was preparing outlines and proposals for the mini-budget after the government had to reverse its decision of imposing fixed taxes on retailers which, the sources said, had resulted in losses worth Rs40 billion.

“The government plans to tax multiple sectors to collect Rs30 billion for the Pakistan State Oil (PSO),” the sources further said, adding that the move was part of the government’s efforts to save the PSO from bankruptcy.

In this regard, the Economic Coordination Committee of the Cabinet directed the Petroleum Division to work closely with the Oil and Gas Regulatory Authority to meet this additional financing.

“More taxes will be imposed on four major sectors through an amendment in the finance bill,” they said.

“The abolition of the tax has resulted in a loss of Rs40 billion in revenue,” the sources shared, adding that the tax had been deferred until October and from November, a new mechanism would be proposed to collect taxes from retailers.

On August 4, the federal government withdrew tax on electricity bills for one year after facing pressure from traders over the fixed-tax regime.

The development came after successful negotiations between the government team and traders. Federal Minister for Finance and Revenue Miftah Ismail and Federal Minister for Power Khurram Dastgir Khan held talks with the business community.

“The government has decided to withdraw fixed-tax regime on electricity bills for one year,” the statement issued by the finance ministry read.

Last month, the IMF said that Pakistan would be receiving the $1.17 billion tranche in three to six weeks, after the two reached a staff-level agreement earlier this week.

In a news briefing addressed after the IMF announced the confirmation of the staff-level agreement, Gerry Rice of the IMF Communication Department stated that the finical watchdog had reached an agreement with Pakistan on a combined seventh and eighth review of the programme, “that will translate into about 1.17 million [sic] being disbursed to Pakistan”.

As a reminder, Rice stated that the tranche would bring the total disbursements, from the IMF to Pakistan under the ongoing programme, to approximately $4.2 billion.

“We're hoping this will help to stabilise the economy and among other things help expand the social safety net to protect the most vulnerable; accelerate structural reforms; and help stabilise the macroeconomic situation in Pakistan,” he added.

In response to the tentative timeline of the disbursement of funds, the spokesperson stated that the final meeting could be held within three to six weeks, “that's roughly the ballpark between the staff-level agreement and then the final agreement, which comes from our board.”

Pakistan avoided the lingering threat of a default after the IMF on July 14 announced a staff-level agreement to extend the bailout package and increased its size to $7 billion.