IMF (INTERNATIONAL MONETARY FUND)

TARGET

THE FBR’s tax target of Rs6tr for the next year under the IMF-mandated fiscal adjustment
policies will increase the income tax burden on salaried individuals, expand the scope of
consumption tax and see the withdrawal of certain tax exemptions, besides raising electricity and
petroleum products’ prices.

IMPACTS

The new revenue mobilisation measures will unleash another round of inflation while further
squeezing purchasing power. In order to meet its other payment obligations such as debt
servicing and recurrent expenditure like the defence budget, the government would have to
reduce development spending, which would hamper job creation among other things. The
government’s commitments to the IMF for resumption of the loan suggests that next year’s
projected tax collection is 27pc or Rs1.3tr higher than the current fiscal’s revised target.
This means people will pay the FBR an additional Rs570bn in 2021-22 owing to changes in
income tax and GST. Likewise, they will pay almost Rs160bn more as petroleum levy in
addition to picking up the burden of withdrawal of exemptions to businesses and increased taxes
on imports.

The PTI government has assured the IMF of its commitment to “broadening the tax base and
gradually increasing the tax-to-GDP ratio by more than 3pc of GDP through FY2023, with a
cumulative fiscal policy adjustment of 3.3pc of GDP”. The details of the agreement were
revealed days after the World Bank’s Pakistan Development Update drew a bleak picture of the
medium-term economic growth outlook and brought the focus back on surging poverty and
rising unemployment in the midst of Covid-19. The day the report was released, the prime
minister too had underlined the implications of the IMF-mandated adjustments on economic
growth, businesses, poverty and jobs, saying that he intended to approach the Fund for
softening its loan conditions. A few days earlier he had sacked his finance minister for agreeing
to stringent IMF conditions.

A report quoted the IMF mission chief in Pakistan as saying the “programme requires
significant revenue efforts from the beginning as there is little room on the expenditure
side”. That may be so but it does not justify the new burden on ordinary people who have lost
jobs or seen their real incomes shrink significantly in these times. Unfortunately, honest
taxpayers and consumers are being punished for the government’s failure to revamp the
corrupt tax machinery and collapsing power sector. Most tax revenue measures will affect the
poor to middle-income groups — directly or indirectly — while the wealthy will continue to
get massive subsidies and tax relief in the name of providing jobs and homes to them. For
many, the IMF has become a part of the problem by emphasising higher revenue collection
rather than stressing the need for broadening the net for boosting tax collection and structural
reforms. By letting the government get away with its failure on reforms, the Fund is only
helping it widen income inequality in the country