IMF official arriving for talks on VAT, power tariff

Shahbaz Rana April 09, 2010

ISLAMABAD: A top IMF official is scheduled to arrive tiday for seeking assurances from Pakistani authorities about imposition of value added tax and increase in power tariffs.

The visit of Washington-based IMF chief for Pakistan, Adnan Mazari, is very significant as the International Monetary Fund (IMF) has twice cancelled approval of a fifth tranche of $1.2 billion under the $11.3b bailout package.

The IMF also wants to get assurances about tax and power sector reforms before a meeting of its executive board expected to be held around mid-April. Mazari, who is also Assistant Director of Middle East and Central Asia Department, during his two-day visit will have in-depth discussions with Finance Adviser Dr Abdul Hafeez Sheikh on reforms initiated to stabilise economy.

He will also meet State Bank of Pakistan Governor Syed Salim Raza and Federal Board of Revenue Chairman Sohail Ahmad. Finance ministry sources said that the government had in principle decided to increase power tariff with effect from April 1. “The finance adviser has signed Memorandum of Economic and Financial Policies, which will be submitted to the IMF board.

It states that the government will increase power tariff before the end of April,” a source said. The government is reluctant to announce an increase in electricity prices at a time when people are enduring an average 14 hours of power outages.

Nonetheless, the commitment with donor agencies and fear of breach of fiscal deficit target is pushing the government to take the difficult decision before the IMF executive board meeting. Finance ministry sources told The Express Tribune that the IMF wanted to call the executive board meeting on April 18 or 19 but Pakistan informally asked the lender to delay it till the end of April so that it could find more time to take some crucial decisions.

Pakistan has committed to levying value added tax on goods and services from July 1 but Sindh is putting up resistance and is demanding rights to collect VAT on services.

However, the IMF and the World Bank are in favour of uniform VAT collection. The government has tried to convince the US to use its influence in order to get relief from the IMF allowing the country to delay both the difficult decisions.

However, knowledgeable sources said that the US wanted to keep Pakistan under pressure, so it politely refused to accept the request of its major non-NATO ally. Sources said that Adnan Mazari would also take up the issue of less-than-expected progress on tax reforms and recurrence of circular debt, which was badly affecting the economy.


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