IMF told: Cabinet nod being sought for Rs170bn tax measures today

ISLAMABAD: Pakistani authorities informed the International Monetary Fund (IMF) on Monday night that the government was going to lay down different tax proposals before the federal cabinet on Tuesday (today) to get its final nod in order to fetch additional taxation of Rs170 billion through a presidential ordinance.

The IMF has suggested adopting the path of permanent taxation measures by abandoning the path of one-offs. The government has decided to drop the flood levy on imports owing to stiff resistance by the IMF.

However, the government has proposed jacking up the general sales tax (GST) rate by one percent, raising it from the standard rate of 17 to 18 percent.

“We will adopt the path of promulgation of an ordinance for avoiding further waste of time. Once the cabinet grants its nod the presidential ordinance will be promulgated within the current week,” top official sources confirmed while talking to The News here on Monday night.

The IMF had given its prescription to slap a standard rate of GST on petroleum products but Islamabad sternly opposed it. However, the Petroleum Levy on High-Speed Diesel (HSD) will be jacked up from Rs40 to Rs50 per liter. The possibility of further increasing the limit of petroleum levy cannot be ruled out at the moment but Pakistan is still resisting it.

A senior official of the Finance Ministry said that the authorities on Monday evening shared their detailed comments with IMF’s review mission through a virtual meeting on the Memorandum of Financial and Economic Policies (MEFP) and asked the Fund for adopting a staggered approach to making adjustments on all fronts in phases.

However, the IMF has conveyed in a crystal clear tone that Pakistan will have to undertake permanent taxation measures in order to fetch Rs170 billion in additional taxes in the remaining period of the current fiscal year.

Although, the government is still making its last-ditch effort to convince the IMF for allowing certain taxation measures which could be considered “one-offs” such as the imposition of flood levies in some form. But the IMF wants permanent taxation measures, so the government will have to slap massive taxation having annualised impact of Rs500 billion. “With the imposition of taxes worth Rs450 to Rs500 billion on an annual basis, the government can raise additional revenues of Rs170 billion in the remaining period of the current fiscal till June 30, 2023,” said top official sources.

It is expected that Pakistan and the IMF would strike a staff-level agreement by end of the current week. When asked about the possibility of the promulgation of an ordinance to unveil the mini-budget, an official said that the decision would be taken within the week about introducing a bill or promulgating an ordinance to this effect.

However, another official said that the government did not have the luxury to wait for the next 15 days because every day counts to collect the desired tax revenues of Rs170 billion through permanent measures. The possible strategy could be unveiling a mini-budget through the presidential ordinance and then it would be laid down before Parliament within the stipulated timeframe under the constitutional obligations.

The IMF has been informed that the government was pursuing bilateral and multilateral creditors to secure the desired dollar inflows and when it would get stamped approval and backing of the IMF in the aftermath of the revival of the Fund programme, Islamabad will be able to raise the desired inflows of $12 to $13 billion. If all dollar inflows are materialised, the ongoing financial year will be ended without the danger of looming default on an immediate basis.