Levying more taxes either by withdrawing the SROs or through new legislation was one of the most contentious pre-conditions out of the five the IMF has set for Pakistan to obtain a fresh monetary package. ILLUSTRATION: JAMAL KHURSHID
Sources revealed on Tuesday that the concession has paved the way for a new bailout programme worth around $5.3 billion. A formal announcement is expected within the next 24 hours, sources added.
The review and withdrawal of tax exemptions enjoyed by the country’s wealthy and influential lobbies will be a ‘structural benchmark’ or condition of the new IMF programme, confirmed a senior official of the finance ministry to The Express Tribune.
The tax exemptions have been granted through Statutory Regulatory Orders (SROs), and no new legislation will be required to take them back, sources said. However, the amount the government will raise by withdrawing the SROs was not immediately clear.
In the budget for the fiscal year 2013-14, the government has already levied Rs207 billion in new taxes aimed at achieving a tax target of Rs2.475 trillion. But this was declared insufficient by the IMF.
The move, though much-needed, is contrary to Finance Minister Ishaq Dar’s assertion that the government will not levy more taxes, “programme or no programme”. However, as a face-saving measure, the Pakistan Muslim League-Nawaz government will sell it as part of ‘homegrown reforms’ by insisting that it will not be a revenue measure, sources said.
The Federal Board of Revenue (FBR) will also soon start working on the SROs that will be withdrawn.
Levying more taxes either by withdrawing the SROs or through new legislation was one of the most contentious pre-conditions out of the five the IMF has set for Pakistan to obtain a fresh monetary package.
“We have converged on all issues and the deal will be closed very soon,” said Rana Asad Amin, a spokesman for the finance ministry.
Pakistan is in dire need of an IMF package to repay the loan it obtained in 2008. The reserves held by the State Bank of Pakistan are not sufficient to meet international obligations.
According to the Economic Survey of Pakistan 2012-13, in the last fiscal year alone, the country provided Rs239.5 billion worth of tax breaks, mainly to influential people.
The FBR gave Rs82.3 billion worth of income tax exemptions. The sales tax exemptions stood at Rs37.5 billion which were mainly given to sugar and tractor industries. The customs duties exemptions grew to Rs119.7 billion.
But not all the exemptions can be withdrawn as many are given under international treaties, particularly on account of customs duties that are waived off or reduced under preferential and free trade agreements. The independent power producers are enjoying income tax exemption and the country waived off Rs50 billion in the last one year alone, according to the government report.
Published in The Express Tribune, July 3rd, 2013.
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@gp65: Thanks for correction.
@Gp65:
No. GDP numbers are supposed to be adjusted for inflation. My 5% number is after inflation.
@gp65:
"However GDP of Pakistan is not $125 billion as you state. Last time I saw it mentioned as$231 billion."
Pakistan's true GDP is nowhere close to $231B. During 2000 to 2008, Musharraf and Shaukat Aziz cooked the books and magically increased Pakistan's GDP from about $70B to $160B in less than eight years! That is an average of 18% per year!! Right here in ET there was an article about this magic that Musharraf performed using smoke and mirrors.
The true GDP of Pakistan is closer to $130B assuming a generous average 5% growth rate in the last 12 years counting from 2000.
This doesn't mean much. In reality this is what will happen. After the IMF approves the loan and Pakistan starts getting the tranches, Dar will cook the books to show that Pakistan is satisfying the IMF conditions. In reality, none of the conditions will be instituted. The truth will be out after three or four years and the IMF will suspend further tranches. That is what happened the last time Pakistan obtained the $12B IMF loans. Pakistan never implemented the agreed-upon conditions.
Big surprise? Anyone really think all those "chest thumping" speeches amounted to anything? It's past time the govt of Pakistan spend time explaining to the public exactly what the IMF is demanding and why those demands are reasonable - also past time that Pakistan explain exactly why IMF funding is critical.
With the way pakistan's economy is IMF had no choice but to ask pakistan to increase taxes on it's rich to recover it's money. It's not like pakistan has a big middle class that it can tax heavily. It does not mean increased tax revenues would help the avg pakistani. You're going to see a lot of flight of capital with increased taxes on the rich.
@Gp65: Actually Ishaq Dar’s budget already indicated that he would collect incremental taxes worth 475 billion dollars. Total GDP of Pakistan is 125 billion dollar, how can Ishaq Dar collect 475 billion dollar from 125 billion dollar?
@Xnain: From your link; As of 2012, the default had not been completely resolved, although the government had repaid its IMF loans in full.
We are up against Banker's Arithmetic, it is impossible to pay off. So why go deeper in debt?
@just_someone: Washington Consensus is dead in case you are not paying attention to the news, now US has to convince countries with brute force.
Secondly you can't pay off usurious loans, it is a mathematical impossibility without destroying your economy and society.
Where exactly ET gets its news from? who are the "SOURCES" same news in Dawn is different http://beta.dawn.com/news/1022300/imf-deal-to-end-power-subsidy
Ishaq Dar conceded to IMF 'ankhon mein ankhain daal ker'.
We are a country where second hand cloths and prepaid mobile phone card even worth Rs. 100 is taxed. Yet a person making millions out of agriculture has to legally pay peanuts (leave alone what he actually pays). According to Shaukat Tareen Rs., 300 billion are stolen every year thru withholding tax and duties charged by service industry but not paid to govt. and so on. The large shopkeepers including departmental stores pay only a fraction of their taxes. Only salaried class and MNCs pay taxes reatively better. A society based on such injustices deserves to lick the feet of IMF.
@Ashkenazi: Just look at the example of Argentina how a sovereign default affected their economy and how they are still struggling to make a return to international debt markets link text
This is what happens when an accountant runs a country's economy. Even a conservative institution like IMF has abandoned the advocacy of tax exemptions to wealthy or supply-side tax cuts. In Pakistan, Mr. Dar is trying to resurrect a failed and out-of-date economic policy.
@Ashkenazi: You must not have a very good understanding of economic theory/history. Defaults result in long periods of renegotiation before these haircuts are decided. These are not done overnight. Argentina renegotiated its major contracts over a period of 2 years. This is not the case of Greece which was special since the money was owed to other EU member banks. In the time renegotiations are happening, a country is considered in default and this triggers a bunch of contractual clauses in any kind of economic dealing and results in having to pay higher interests/cant get new loans/LCs are not opened. There is a lot more that I cant get into. Please stop saying things to sound smart, things that you read in another context. I am a well trained macroeconomist/financial economist and I can tell you Pakistan is in deep s*!
Who says Pakistan is a poor country? Haaahh! If PKR. 240 billions worth of exemptions and waivers are easily afforded as a loss to the treasury, then 'what me worry, no problem at all.' Since, the country has poorly managed borders open all along the eastern and western length of the country, the undocumented economy of the country will grow larger and give the wealthy their untaxed profits. The tough conditions of the IMF are an eye-opener and meant to bring the economy online with international standards but the GOP all along has never seriously got down to putting things right. Salams
For PMLn bashers; Damn if they do , damn if they dont. Lets be objective.Govt shouldhave done away with exemtions on its own.But still credit goes to them for agreeing.PPP Govt never did.
Incorrect reporting ...... Pakistan is negotiating on its own terms.
Good. Our influential are mainly feudal lords, and our corrupt government ensures they are protected, and special SRO's issued just for them....eg. PPP allowing luxury cars to be made legal at a much lower tax rate.
There is nothing wrong with default.
Get a debt moratorium and tell IMF to get a haircut.
Its sad that a bunch of foreigners are the ones who got the middle-class/poor people of Pakistan equal treatment from the government in terms of taxes.
Attention should now shift to the FMs assertion that he can turn the economy around in 6 months ++++++++++++++++++++++++++++++++++++++++++++++ If he fails, pls get a new FM.
This is great, with country's elite finally paying taxes, it will learn what misery a common man faces day in and out in this land of Pakistan. kudos to IMF, what our leaders couldn't do at their own , you made them do!
In a bid to avoid potential financial default, Pakistan has conceded to a major demand of the International Monetary Fund (IMF) by agreeing to withdraw tax exemptions to the wealthy.
Thank you IMF, for pulling meat out of the mouths of these vultures.
Let me tell you a secret. Every Pakistani economist and technocrat believes in the IMF policies but for the public they want to appear as if the IMF forced them to accept. Every Pakistani technocrat secretly wants to crush the corrupt Feudal-Plutocrat-Elite.
PMLN has taken U-turn on every election promise they made and within a month.
What a shameful attitude from our financial strategists who want to give exemptions to the wealthy and tax even on the basic necessities for the poor. If not for IMF these leaches will suck the blood of poor to fattened their bellies. Thank you IMF.
Inevitable, with current economic situation it would be next to impossible for Pakistan to raise such amount of money from inevitable.