Pakistan

IMF proposes reviving 18% GST on petrol

There is also a proposal to gradually increase excise duty on luxury items produced in Pakistan

Our Correspondent March 23, 2024

PHOTO: FILE

ISLAMABAD:

The International Monetary Fund (IMF) has recommended reinstating an 18% general sales tax (GST) on petrol during the ongoing discussions with the government for the release of the last tranche of its bailout package.

According to Express News, the IMF has proposed increasing the levy on petrol by Rs60 and reinstating the 18% GST previously abolished in March 2022.

The amount of federal excise duty on petroleum products in the fiscal year 2023 was 0.7% of the GDP, while for other items, it was 0.4% of the GDP, mainly obtained from the federal excise duty on cigarettes.

The Petroleum Development Levy has undergone several changes in recent years, but there was a significant increase in it in fiscal year 2023.

In July 2022, the rate of petroleum levy on petrol was Rs20 per liter, which was increased to Rs50 per liter from November 2022, and further raised to Rs60 per liter until September 2023.

Whether local or international projects, the IMF has proposed imposing the Petroleum Development Levy on machinery that pollutes the environment.

It has been proposed to gradually increase excise duty on luxury items produced in the country, such as yachts, while enhancing border control. This is aimed at preventing the illegal supply of petroleum byproducts from sensitive areas in particular.

According to reports, an increase in federal excise duty (FED) at a uniform rate on domestically manufactured cigarettes has been recommended by the IMF. There is also a proposal to apply the same tax rate to imported cigarettes as local cigarettes.

COMMENTS (1)

Anonymous | 7 months ago | Reply Imposing taxes continuously can indeed burden a country s economy and it s always wise to explore alternative means of revenue generation to reduce dependency on such measures. Here are some ideas to help a government reduce reliance on annual taxes and potentially avoid IMF intervention Economic Diversification Encourage diversification of the economy beyond traditional sectors like agriculture or raw material extraction. Invest in industries such as technology renewable energy tourism and manufacturing. A diverse economy can generate more revenue streams and reduce reliance on a single tax source. Public-Private Partnerships PPPs Foster partnerships between the government and private sector for infrastructure projects such as roads airports and utilities. The private sector investment can relieve the burden on public finances while still driving development. Efficient Resource Management Implement efficient resource management strategies to reduce wastage and increase revenue from existing resources. This can include better management of natural resources improved tax collection systems and crackdowns on corruption and tax evasion. Export Promotion Focus on promoting exports by providing incentives to businesses improving trade infrastructure and negotiating favorable trade agreements. Increased exports can bring in foreign exchange and stimulate economic growth without relying solely on taxation. Encourage Foreign Direct Investment FDI Create a favorable business environment to attract foreign investors. This can include providing tax incentives ensuring political stability improving infrastructure and streamlining bureaucratic processes. Development of Financial Markets Develop domestic financial markets to mobilize savings and channel them into productive investments. This can reduce reliance on external funding and decrease vulnerability to international financial pressures. Sovereign Wealth Funds SWFs Establish sovereign wealth funds to invest surplus revenues from non-tax sources. SWFs can generate returns over time providing a steady income stream for the government and reducing the need for annual taxation. Innovative Financing Mechanisms Explore innovative financing mechanisms such as green bonds infrastructure bonds or social impact bonds to raise capital for specific projects without burdening taxpayers. Focus on Education and Human Capital Development Invest in education and skill development to create a highly skilled workforce. A well-educated and skilled population can attract investment drive innovation and contribute to economic growth reducing the need for excessive taxation. Long-Term Planning and Fiscal Discipline Implement long-term fiscal planning and exercise fiscal discipline to ensure sustainability and avoid deficits that necessitate frequent tax hikes or IMF intervention. By implementing a combination of these strategies governments can diversify revenue sources stimulate economic growth and reduce dependency on annual taxation thereby mitigating the risk of IMF intervention.

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