$6.2b bailout: IMF sets tight deadline for slapping new taxes

Published: November 7, 2015



Pakistan will have to take around Rs40 billion in additional tax measures in the next two weeks, the chief of the International Monetary Fund’s (IMF) mission in the country said on Friday.

His statement came as the government contemplates increasing duties on cigarettes and luxury consumer items to meet the shortfall in revenue collection targets to secure the next $502 million tranche of the $6.2 billion loan programme.

Pending IMF and World Bank reforms

“There is currently a shortfall of about Rs40 billion in [Pakistan’s] tax revenue,” Harald Finger told reporters in Islamabad. “The government will take measures to raise that amount,” he said.

Finger also shared his view on the value of the Pakistani rupee against the US dollar and quashed rumours that the IMF could be used to press Pakistan into accepting curbs on its nuclear programme.

Talking about the new tax measures, Finger said it was up to the Pakistan government to decide what precise measures it will implement to meet the shortfall. He stressed, however, that these measures will have to be put in place in the next two weeks.

“These measures have to be implemented before we go ahead with the next [IMF] board meeting,” Finger said.

Pakistan to get another $502m IMF loan

The meeting of the IMF board, which has to approve the disbursement of the next loan tranche, is tentatively scheduled for December 15. It will not be called if Pakistan fails to introduce the new tax measures, a senior finance ministry official said.

Pakistan’s request for a board meeting has to be distributed among the IMF board along with a letter of intent and memorandum of economic and financial policies at least 15 days before the meeting, sources familiar with the internal lender’s workings told The Express Tribune.

This has effectively put the government in a tight spot as it will have to make ground to introduce a mini budget just four months after National Assembly approved the budget.

Pakistan agrees to slap billions in new taxes

According to finance ministry sources, the government is considering increasing regulatory duties on luxury items and federal excise duties on cigarettes, and imposing certain anti-dumping regulatory duties to meet the IMF condition.

However, the definition used by the Federal Board of Revenue (FBR) for luxury items is interesting. Yogurt, butter, cheese, cereal, pineapple, guava, vermicelli, tomato paste and chocolates are a few of the hundreds of items treated as luxury items. These items were part of the 282 goods on which regulatory duties were raised by five per cent in June last year to meet the IMF condition.

The need for a mini-budget arose after FBR failed to achieve its July-September tax collection target of Rs640 billion. The price for this failure will now be paid by consumers.

Inconclusive IMF talks extended for two days

Sources said the increase in duties at the import stage will automatically increase sales tax collection, as the sales tax is calculated by including all duties and levies in the price. However, the economists fear this may stoke inflation in the country, which is currently quite stable.

Pakistani rupee ‘overvalued’

Finger also spoke about what IMF thought of the exchange rate for the Pakistani rupee.

“There are no scientific estimates as to what the exchange rate should be but our module shows that the rupee is overvalued by between 5% and 20%,” he said. “If the exchange rate is depreciated by that amount then it will be in line with fundamentals.”

IMF praises SBP for financial sector’s stability

The IMF mission chief clarified, however, that was not suggesting Pakistan should devalue the rupee by that percentage.

Rupee-dollar parity is already under pressure in recent days and stands at Rs105.6 a dollar, shedding about three per cent value in the last few weeks.

To a question, Finger said that “there is absolutely no link between the IMF programme and Pakistan’s nuclear sector,” burying speculations that the United States could use the IMF to pressure Pakistan into rolling back its nuclear programme.

He said the IMF programme was actually helping put in place a gradual phase of fiscal adjustment, which will reduce Pakistan’s financing needs and lower the debt-to-GDP ratio. He said defense expenditures are “a matter of national preference and national decision-making”.

“One of the main goals of the IMF’s programme is in fact to reduce the public debt,” said Dr Tokhir Mirzoev, IMF’s Resident Representative to Pakistan. “Because of IMF’s programme, Pakistan has become financially much stronger than before 2013,” he added.

Published in The Express Tribune, November 7th, 2015.

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Reader Comments (17)

  • Aman
    Nov 7, 2015 - 9:16AM

    seems like IMF is running the countryRecommend

  • karachi3
    Nov 7, 2015 - 9:45AM

    The basic issue of low tax collection is FBR top management and their strategy.
    FBR has become dysfunctional and urgently needs to be reformed. The recommendations of Tax Reform Commission needs to be implemented and implementation monitored by an independent committee.
    There is massive evasion of custom duties at Customs. FBR is aware of the scale of the evasion of Custom duties due to smuggling and under-invoicing. This needs to be stopped urgently
    The tax base has to be urgently increased which is now about 9,00,000. Country should have atleast 50,00,000 taxpayers. Recommend

  • Kareem
    Nov 7, 2015 - 10:09AM

    The one who pays the piper calls the tune.Recommend

  • Alien1
    Nov 7, 2015 - 10:32AM

    Sovereign country of pakistan being dictated by the IMF…..but pakistan will blame it on india for conspiring against them. Recommend

  • Dr.X
    Nov 7, 2015 - 10:42AM

    You thought things were bad? Wait until we have to return the loansRecommend

  • bahaha
    Nov 7, 2015 - 10:45AM

    Why does IMF fund sinking ships? Let them sink.Recommend

  • Mulla Diesel
    Nov 7, 2015 - 12:51PM

    Todays USD/PKR rate is at 106.30 in the open market. Source Wall Street Exchange Recommend

  • Kareem
    Nov 7, 2015 - 2:46PM

    Politics mostly. They need our help with the “war on terror”Recommend

  • goldigger
    Nov 7, 2015 - 3:22PM

    Capitalism zindabaad!Recommend

  • ali
    Nov 7, 2015 - 4:49PM

    @Dr.X: ask modi, he is planning to spend 12billion just for kashmir but what you need is just half of the money, y dont you beg modi insted of IMFRecommend

  • Saadia Anwar
    Nov 7, 2015 - 4:50PM

    Who is going to return all these loans?
    Privatize, privatize: Sell all your assets.
    But liabilities still exist…..now what?Recommend

  • Al fida
    Nov 7, 2015 - 5:39PM

    Where is our friend, sweeter than honey and deeper than ocean?Recommend

  • tellmore
    Nov 7, 2015 - 5:39PM

    Pakistan should demand IMF to convert all the loans of Pakistan be converted as grants for the simple reason that Pakistan lost more than 100 billion USD on the international war on terrorism in Afghanistan and no body compensated on this.
    Other wise, Pakistan should refuse to repay back the loans to IMF and should approach BRICS bank where China is the main stake holder who are our all weather friend.Recommend

  • Next Greece
    Nov 7, 2015 - 5:40PM

    Next Greece in the making.Recommend

  • Skywalker
    Nov 7, 2015 - 8:22PM

    @Next Greece:
    My fear – what is the fine print in all this? We cannot blame the IMF, call it names as one run by enemies (of Islam) etc to squeeze Pakistan. Our elected leaders are signing it. No one is twisting our arm to go for this. We brought ourself into this mess.
    Greece can save itself, they have security, they resolved issues with Turkey, and many buy properties there, also it has a thriving Tourist Industry. And what do we have to offer? Terrorism, sectarian issues, insecure minorities, please someone tell me otherwise. Just took only 70 years for our ruling elite (politics and army) to bring a nation with tracks of fertile land, perennial rivers, excellent natural resources, down on its knees begging. And that is sad! No wonder we are lost.Recommend

  • Woz Ahmed
    Nov 7, 2015 - 9:03PM

    We are the only country whose government seems to celebrate getting IMF loans, yet in reality it is a loss of sovereignty .

    The IMF is the lender of last resort, that means the country is in financial danger and no one will lend to us.

    @dr.x we will roll over these loans with new IMF loans, what concerns me is Chineses CEPC investments, currently expecting 25-30% return, wait till we have to fund these !Recommend

  • Naresh
    Nov 7, 2015 - 11:40PM

    @Woz Ahmed: @dr.x we will roll over these loans with new IMF loans, what concerns me is Chineses CEPC investments, currently expecting 25-30% return, wait till we have to fund these !
    Sir Ji : I have good news for you. The Chinese are after all Pakistan’s Time Tested Friends. They have settled their return on Investment to a Paltry Figure of Only 17% i.e. Only Seventeen Per Cent and not the exorbitant Figure of 25 to 30%! You should thank the Chinese who are Pakistan’s Higher than the Himalayas Time Tested Friends.

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