The IMF deadline
To secure the next loan tranche, the government will introduce another mini-budget
As the IMF's programme nears its completion, Pakistan will now be hard-pressed each time it is up for an IMF review for the next loan tranche PHOTO: AFP
The IMF’s relationship with Pakistan is an intricate one, mixed with the usual diplomacy and buzzwords one hears so often in political statements. In its latest press release — one that covered the ninth review of the three-year $6.2 billion Extended Fund Facility — the IMF was guarded and less appreciative of the progress Pakistan had made on the economic front. As the programme nears its completion, Pakistan will now be hard-pressed each time it is up for an IMF review for the next loan tranche. This particular loan tranche, the tenth of $502 million, requires the country to introduce taxes that would generate an additional Rs40 billion for the national kitty. For a country that boasts a population of close to 200 million, collecting Rs40 billion in taxes should, ideally, be a fairly achievable proposition. Given consumption levels in the country, even a slight increase in the tax rate can generate that amount.
But herein lies the problem Pakistan has faced over the years. It has done exactly what a man does with an old car which he is not able to replace — repair it with second-hand parts and cheap material, to keep the engine running for another day. To secure the next loan tranche — and then take misplaced pride in increasing the country’s foreign exchange reserves — the government will introduce another mini-budget. Imposing taxes on ‘luxury’ items, which include goods such as yoghurt, cheese, chocolates and butter, will be the government’s next strategy. Capital gains and withholding tax rates, as well as sales tax on petroleum products, have already been increased. The power subsidy has also been cut back, although power outages continue to darken the mood. There are not a lot of other avenues available to the government which it could tap, especially if the tax machinery continues to fail in meeting revenue collection targets. Austerity measures, as claimed by the finance minister, have already been put in place. The IMF’s usual buzzwords provided little solace as it has set a two-week deadline for introducing the new taxes. The citizenry will have to brace itself for yet another mini-budget, which will probably highlight yet again the creativity of our policymakers to come up with new tax heads. This is something that has happened in the past as well. Yet, we wonder, why tax revenues continue to fall short of targets.
Published in The Express Tribune, November 8th, 2015.
But herein lies the problem Pakistan has faced over the years. It has done exactly what a man does with an old car which he is not able to replace — repair it with second-hand parts and cheap material, to keep the engine running for another day. To secure the next loan tranche — and then take misplaced pride in increasing the country’s foreign exchange reserves — the government will introduce another mini-budget. Imposing taxes on ‘luxury’ items, which include goods such as yoghurt, cheese, chocolates and butter, will be the government’s next strategy. Capital gains and withholding tax rates, as well as sales tax on petroleum products, have already been increased. The power subsidy has also been cut back, although power outages continue to darken the mood. There are not a lot of other avenues available to the government which it could tap, especially if the tax machinery continues to fail in meeting revenue collection targets. Austerity measures, as claimed by the finance minister, have already been put in place. The IMF’s usual buzzwords provided little solace as it has set a two-week deadline for introducing the new taxes. The citizenry will have to brace itself for yet another mini-budget, which will probably highlight yet again the creativity of our policymakers to come up with new tax heads. This is something that has happened in the past as well. Yet, we wonder, why tax revenues continue to fall short of targets.
Published in The Express Tribune, November 8th, 2015.