All IMF demands met, new deal to fetch over $6bn: govt

ISLAMABAD/KARACHI: Though the federal government claims fulfilling all requirements of the IMF for a fresh bailout package, the Fund has refused, according to the sources, to accept the enforcement or administrative measures as a tool for generating desired revenue figures for the fiscal year 2024-25.

Minister of State for Finance, Revenue and Power Ali Pervaiz Malik said on Wednesday the federal government had addressed all requirements of the IMF in its annual budget, and now it was looking to clinch a staff-level agreement with the Fund for a bailout deal of more than $6 billion this month.

The Pakistan Muslim League Nawaz (PMLN)-led coalition government has set challenging revenue targets in its annual budget to help it win approval from the IMF for a loan to stave off another economic meltdown, even as domestic anger rises at new taxation measures.

In the budget, the government increased the taxes on the already burdened salaried class, brought exporters into the normal tax regime, increased the petroleum levy to Rs70 per litre and imposed new taxes on the real estate sectors, among others, to increase tax collection.

“We hope to culminate this (IMF) process in the next three to four weeks,” Malik told Reuters, with the aim of thrashing out a staff-level agreement before the IMF board recess. “I think it will be north of $6 billion,” he said of the size of the package, though he added at this point the IMF’s validation was the primary focus. The IMF did not respond immediately to a request for comment.

Malik said the point of pushing out a tough and unpopular budget was to use it as a stepping stone for an IMF programme, adding the lender was satisfied with the revenue measures taken, based on their talks. “There are no major issues left to address, now that all major prior actions have been met, the budget being one of them,” Malik said.

While the budget may win approval from the IMF, it could fuel public anger, according to analysts. “Obviously they (budget reforms) are burdensome for the local economy but the IMF programme is all about stabilisation,” Malik said.

However, financial experts say, despite imposition of heavy taxes to fetch Rs1.747 trillion through additional revenue for materialising FBR’s annual target of Rs12.97 trillion, the IMF has raised objections to estimates of generating desired revenues with measures approved in the budget. The IMF has refused to accept the enforcement or administrative measures as a tool for generating desired revenue figures for the fiscal year 2024-25.

The Pakistani authorities are clueless about how to reconcile revenue figures with the IMF. “Differences have now emerged for ascertaining the exact estimates of revenue measures, approved in the Finance Act 2024-25, whereby the IMF estimates show a gap of Rs200 to 250 billion,” official sources confirmed while talking to The News on Wednesday.

This might force the government to announce some stringent measures for bringing retailers into the tax net. The enforcement campaign against non-filers through blocking of SIMs might gain momentum in the days and weeks ahead, but so far the IMF is dissatisfied with the taxation measures.

The heavy taxation has even confused the IMF team and so far they are not ready to buy the FBR argument that the taxation measures would fetch an additional Rs1.747 trillion-plus nominal growth of Rs1.451 trillion. The FBR’s tax target is envisaged as base year collection plus nominal growth (GDP growth plus CPI-based inflation). Then the additional revenue measures with revenue estimates are added to it.

With this collection, the FBR requires additional revenues of Rs3.664 trillion to display the Rs12.97 trillion target; however, the nominal growth plus taxation measures might fetch an additional Rs3.19 trillion; so, there was still a gap of Rs0.46 trillion. By doing all types of calculations, the IMF insists that there is a gap of Rs0.2 to 0.25 trillion on the revenue front.

Some of the taxation measures announced and approved by the government in haste might create practical problems at the implementation stage. For instance, the imposition of 5 per cent FED on property transactions might result in a plunging legal battle. The exemption for selling property by the government servants might be misused.

The government is in a catch-22 situation as it faces strong criticism over slapping unimaginable burden through rampant taxation on salaried, and non-salaried classes, withdrawal of GST exemptions, slapping taxes on properties, exporters, mobile-phones, exorbitant rates for filers and especially for non-filers, increased rates of Regulatory Duty and Additional Customs Duty and many others in the budget for 2024-25.

On the other hand, the IMF is still unsatisfied despite hectic efforts put in by the finance ministry and FBR high-ups to convince the IMF for showing leniency for striking all prior actions and moving towards striking a staff-level agreement for clinching a fresh deal under the Extended Fund Facility (EFF) in the range of $6-8 billion.

About the taxation measures, the official said that the government imposed a 10pc surcharge on the income tax exceeding annual income of Rs100 million. With an increase in the tax burden on the salaried class, the government aims to fetch an additional Rs80-100 billion in the current fiscal year.

The government had collected Rs375 billion from the salaried class in the last financial year and now it wants to fetch Rs475 billion in revenues after revising upward all slabs of taxable income.

With the imposition of an increased rate of FED on cement from Rs2 to Rs4 per kg, the FBR has estimated to fetch an additional Rs80 billion in the national kitty. The FBR wants to increase its tax collection from Rs9.3 trillion in the last fiscal year, ending on June 30, 2024, to Rs12.97 trillion in the current fiscal year 2024-25, requiring a growth of 40pc.