The International Monetary Fund (IMF) has demanded reforms in the Sales Tax and Income Tax regimes while stressing the need of maintaining a market-based exchange rate. In a new review report, IMF expected the growth of Pakistan’s economy at 1.5 per cent in the financial year 2021 compared to minus 0.4 per cent in 2020.
Furthermore, Pakistan has assured IMF that electricity prices will be increased by 5 rupees by June 30, 2021. There will also be an increase in taxes of around Rs1300-1400billion. In the fiscal year 2021-22, Pakistan has to collect Rs600bn in tax. The government has also assured IMF to collect Rs511bn from the petroleum levy.
The government would also bring down the current year’s development programme to Rs1.169tr against the budgeted target of Rs1.324tr, according to the agreement.
IMF’s deputy managing director and acting chair Antoinette Sayeh said Pakistan would need to reform both general sales and income taxation to achieve FY2022 fiscal target. “The market-determined exchange rate remains essential to absorb external shocks and rebuild reserve buffers,” she added.
“Going forward, further sustained efforts, including broadening the revenue base carefully managing spending and securing provincial contributions, will help achieve a lasting improvement in public finances and place debt on a downward path,” she said.
She added that growth slowed to –0.4 per cent in FY 2020, but is expected to recover to 1.5 percent in FY 2021.
“The external position improved, and inflation continued to decelerate through early 2021 despite supply-driven spikes in food prices,” the IMF review report stated.
The IMF review noted that a new COVID-19 wave is unfolding and “triggering exceptionally high uncertainty and downside risks.”
Antoinette Sayeh, in a press statement, said that the Pakistani authorities have continued to make satisfactory progress under the Fund-supported program, which has been an important policy anchor during an unprecedented period.
“While the COVID-19 pandemic continues to pose challenges, the authorities’ policies have been critical in supporting the economy and saving lives and livelihoods. The authorities have also continued to advance their reform agenda in key areas, including consolidating central bank autonomy, reforming corporate taxation, bolstering management of state-owned enterprises, and improving cost recovery and regulation in the power sector,” she stated.