The government of Pakistan has decided to resort to ‘rationalization of taxes’ to reduce the gap in revenues amounting to Rs450bn that had been forgone while it tried to keep the prices of petroleum products one of the lowest in the world.
Pakistan on Wednesday reached an agreement with the International Monetary Fund (IMF) for the resumption of its programme. Adviser to the Prime Minister on Finance and Revenue Shaukat Tarin said, “We will have to definitely rationalise taxes but I would not disclose more about the IMF programme at this stage,”.
Tarin while speaking at a joint news conference with Energy Minister Hammad Azhar said, “We have reached very close to the agreement. Take my assurance. Only one or half of things are outstanding and that is currently under discussion… would be settled”.
The announcement of the approval of the financial package by the Kingdom of Saudi Arabia was made at the presser. The financial package comprises $3bn in safe deposit along with $1.2bn worth of petroleum product supplies on deferred payments.
Adviser Tarin said that everything regarding the IMF programme had for the most part been settled when he left Washington. He said he had returned from New York to Washington to settle some loose ends. “This IMF (programme) will be done. Take my word and remove this uncertainty,” Tarin reiterated.
While responding to a question, the Adviser clarified that tax measures had not been a part of the negotiation with the IMF and ‘only principles and policies were discussed.
He said that in terms of revenue collection, targets for primary and fiscal accounts were negotiated. The IMF wanted the primary account entailing the difference between revenues and expenditures excluding debt servicing to be in surplus. He added, “Obviously they ask how we are going to bridge the gap when we do not collect petroleum levy after targeting it at Rs600bn in the budget”.
Pakistan had collected Rs175bn more revenue than the targeted figure during the first quarter of the year. Tarin explained that the government would be battling a deficit in non-tax revenues and although FBR revenues were higher, they had been distributed among the provinces and had a minor impact on the federal fiscal position.
The energy minister said at the presser that the government had waived around Rs450bn in the form of general sales tax and petroleum levy on oil products. However, the government now had mounting pressure regarding its decision to not impose taxes on petroleum products.
He explained that the loss of GST and PL on petroleum items naturally had an impact on the revenue leading to the government looking towards other avenues to meet the requirements.
Discussing the Saudi package, Tarin informed that he had made the announcement initially in June and later in September pertaining to the agreement with the Kingdom upon Prime Minister Imran Khan’s request for $1.5 to $1.8bn support at the rate of $150 million per month for the supply of oil products on deferred payment but the details had not been finalized then.
He added that during Khan’s recent visit Crown Prince Mohammad Bin Salman was recapped regarding the agreement in principle on oil facility and reminded that it had not been operationalized so far.
Tarin said, “On the spot, the crown prince approved the package. So it is a $4.2bn annual packages which is better than we had requested for $1.8bn annual support for oil supplies that would have translated into a $3.6bn package for two years.”
He said that the terms and conditions of the package are to remain the same as they were in 2018-19 i.e., payable at an interest rate of 3.2pc annually.
Minister Azhar stressed that the global community was going through a commodity cycle owing to demand and supply issues arising out of stimulus packages announced by different countries. He added that food and energy prices had spiked significantly but oil prices in Pakistan were one of the lowest in the world.
Pakistan had not raised gas prices since 2019. Europe had witnessed more than a 500 per cent increase in gas prices this year, the minister told the media before expressing the hope that prices will fall after around six months as the commodity cycle is expected to end soon.