IMF conditions: Govt imposed Rs215bn additional taxes in budget, says Ishaq Dar

ISLAMABAD: In order to strike an agreement with the International Monetary Fund (IMF) under Standby Arrangement Programme, the government had to impose additional taxes of Rs215 billion and slash expenditures by Rs85 billion at the time of finalisation and approval of the budget from the Parliament, Minister for Finance Ishaq Dar said.

While briefing the National Assembly Standing Committee on Finance and Revenues, Dar said that when the government had presented the budget on June 9, 2023 it was stated that no more taxes would be slapped, however, for striking the IMF agreement the government had to impose more taxes for clinching the new SBA programme.

“We have to make changes in the winding-up speech in view of the conditions of the IMF. Some concessions granted on June 9 were taken back in the amended Finance Bill 2023. Under the IMF programme, it is forbidden to give tax exemptions or preferential tax treatments or amnesty scheme. Till we are in the IMF programme it is prohibited to grant any new tax exemption,” Dar said.

When he assumed the charge of minister for finance at the end of September 2022, the IMF was requested to visit for the review in November but the Fund staff delayed dispatching of its mission and they came on January 31, Dar said, adding the staff-level agreement could not be reached within stipulated timeframe that created difficulties.

The PDM-led government combined the seventh and eighth reviews under the last Extended Fund Facility (EFF) programme, but external financing caused delay in the completion of the nineth review, he said.

Dar said that Pakistan had a Plan-B and the country would not have defaulted even without the new IMF programme.

“If we were not in the IMF programme, the government would not have imposed new taxes in the budget.”

He said now there is a compulsion, Pakistan is in the IMF programme, he told the participants.

The meeting was told that the IMF agreement is available on the website of the Ministry of Finance.

The minister of finance said that it is written in the IMF document that Pakistan will not give any kind of tax amnesty. He said that he had asked the FBR to convene a meeting with the real estate sector to work out revised evaluation rates of immovable properties across the country.

During the meeting, the real estate sector requested the minister to stop the FBR from increasing values of immovable properties in August 2023.

Ishaq Dar directed the FBR to look into the matter whether it is possible to stop the next increase in the valuation tables of the immovable properties in light with the reservations of the real estate sector.

SAPM on Finance Tariq Bajwa said that the values of the immovable properties have not been raised since last one to two years.

The representatives of the real estate sector made a hue and cry in the committee that the increase in the valuation rates of immovable properties was linked with no hike in taxes on buying and selling of properties.

Contrary to this, the FBR has considerably raised taxes on real estate sector through the amended Finance Bill 2023. Moreover, there is no IMF condition to increase values of immovable properties and it is the sole discretion of the FBR to increase the values of immovable properties. Thus, the FBR should not raise values of immovable properties under the cover of any IMF condition, the realtors added.

The committee took notice of the challenges besieging the real estate sector, particularly due to the amendments to the Finance Act of 2023. It underscored how the introduction of Section 7e has triggered stagnation in the sector, deterring prospective buyers and jeopardising around four million jobs linked to the industry. Consequently, the committee directed the FBR Member (Legal) to engage with the real estate federation to rectify issues related to Section 7e and devise a mutually beneficial solution that aligns with the state’s policies.

State Bank of Pakistan (SBP) Governor Jameel Ahmed, while briefing the committee on the Temporary Economic Refinance Facility (TERF) initiative, revealed that out of the total 629 projects, 469 were fully operational, 89 partially operational, and the remaining 62 were expected to be operational by June 2025. He estimated that the TERF initiative would create approximately 194,300 jobs and generate 11 billion rupees of revenue in the upcoming years through export earnings and import substitutions.

Moreover, the committee members from Sindh expressed their apprehensions about the hardships of farmers in flood-affected areas, particularly widows, struggling with agricultural loan interest payments.

The committee urged the finance minister to provide relief by suggesting that state-owned banks collect only the principal amount, forsaking the exorbitant interest. Furthermore, the forum demanded complete debt relief for the widows.

The committee sought a comprehensive delineation from the SBP about the approval procedures and norms associated with the concessionary loan schemes in question.

The committee was eager to explore possibilities of the loan funds being illegitimately transferred overseas or machinery being underutilised. They also express concern over the SBP’s apparent lack of follow-up oversight regarding loan utilisation.

In response, the SBP governor reiterated that the sanctioning of such concessionary refinancing was approved under the provisions of the SBP Act 1956, just like other schemes such as the Long-Term Financing Facility (LTFF) for export and non-export projects. He clarified that the SBP played no part in selecting the borrowers or disbursing the funds and that the total credit risk was undertaken by banks or Development Finance Institutions (DFIs). The banks and DFIs, he added, were directed to exercise due diligence in disbursing finances to borrowers.

The governor further stated that the financing under the TERF was strictly for the procurement of new plants and machinery and was exclusively against Letters of Credit (LCs) or Irrevocable Letters of Credit (ILCs).