IMF urges Pakistan to harness untapped tax sources to boost revenue

The International Monetary Fund (IMF) has called on Pakistan to widen its tax base by focusing on untapped revenue sources, as the country struggles to boost its tax collection efforts.

This call from the IMF comes after the conclusion of a staff level visit to Pakistan, which took place from November 12 to 15. The mission, led by IMF representative Nathan Porter, assessed the nation’s economic progress during the visit.

According to an official statement from the Washington-based lender, the mission engaged in discussions with senior officials from both the federal and provincial governments, as well as the State Bank of Pakistan. The team also met with private sector representatives to gain a comprehensive view of Pakistan’s economic situation.

The Fund said the staff visits are standard practice for countries with semi-annual programme reviews and aim to engage with the authorities and other stakeholders on the country's economic developments and policies and the status of planned reforms.

Since the visit was not anticipated, there were reports that the global lender's visit would mean that the federal government would have to roll out a mini-budget; however, reports now suggest that such a move would not occur.

"We had constructive discussions with the authorities on their economic policy and reform efforts to reduce vulnerabilities and lay the basis for stronger and sustainable growth," Porter said in a statement at the end of the visit.

The official added that the visiting delegation and the Pakistani authorities agreed on the need to continue prudent fiscal and monetary policies and revenue mobilisation from untapped tax bases, while transferring greater social and development responsibilities to provinces.

In addition, he said, structural energy reforms and constructive efforts are critical to restore the sector’s viability.

Porter further stated that Pakistan should take steps to decrease state intervention in the economy and enhance competition, which will help foster the development of a dynamic private sector.

"Strong program[me] implementation can create a more prosperous and more inclusive Pakistan, improving living standards for all Pakistanis."

The IMF, meanwhile, said it was encouraged by the Pakistani authorities' reaffirmed commitment to the economic reforms supported by the 2024 Extended Fund Facility (EFF).

The next mission associated with the first EFF review is expected in the first quarter of 2025.

'Competitive energy sector market'

Dr Khaqan Najeeb, former Advisor to the Ministry of Finance, while commenting on the development, said that the IMF's visit was an engagement for stock-taking of the first quarter's quantitative results and ongoing structural benchmarks for reforms.

"The preliminary findings highlight the work needed on the perennial issues of broadening the tax base in 3 areas (agri income tax, retail and real estate) plagued with substantive tax gaps, and the need for devolution of finances to the provinces as envisaged in line with the 18th amendment," he said.

Dr Khaqan stressed that the energy sector’s restructuring beyond pricing changes remains critical, coupled with a reduced footprint of the state, something which the country has found hard to do.

"The need for a competitive energy sector market has been an ongoing effort for years and has been emphasised by IMF yet again.

"The IMF engagement also highlights the importance of Pakistans' fiscal consolidation and external buffers for sustaining macro stability," Khaqan said.

The engagement may help ensure Pakistan authorities stay on course for meeting targets of first review in 1st quarter of 2025, he added.