In order to comply with International Monetary Fund (IMF), the government plans to withdraw tax exemptions to increase its revenue. According to details, the government will abolish tax exemptions worth Rs350 billion in the upcoming mini-budget.
Reports suggest that the government will eliminate exemptions (Sixth Schedule) excluding a small subset of goods (i.e. basic food, medicines, live animals for human consumption, education, and health-related goods) and bring all others to the standard rate; and (iv) remove the Ninth Schedule to replace a specific tax rate for cell phones with the standard rate.
Furthermore, the government will increase the electricity tariff by Rs. 1.68 per unit. Advisor to the Prime Minister on Finance Shaukat Tarin revealed the details while talking to a private news channel.
Shaukat Tarin also said that the government will increase the Petroleum Development Levy (PDL) by Rs4 every month to eventually take it to Rs30 as part of the negotiations with the IMF.
An increase in taxes and withdrawal of exemptions is an alarming situation for Pakistan. However, Tarin revealed that the proposed amount is half of what the IMF wanted.
He said that the latest agreement with the fund is different from the previous one, “where we agreed on tougher conditions such as the imposition of Rs700 billion in new taxes, which we managed to reduce to Rs350 billion”.
The development comes as IMF recently agreed to release the next loan tranche of $1b to Pakistan under the $6bn program while the agreement yet needs to be approved by the Fund’s Executive Board.
On the other hand, as per recent news, the IMF rejected Pakistan’s borrowing request.
Pakistan has renegotiated IMF package. As a result Pakistan will receive $ 1 billion in few days but how much pain it will cause to Pakistani public through higher electricity/gas/petrol prices & increase in price of essential items? This govt has no idea of the pain of masses
— Mohammad Zubair (@Real_MZubair) November 23, 2021
Complying to IMF: A wise decision?
To clarify, IMF tabled five conditions for Pakistan that includes rising the petroleum development levy and to enforce 17 percent universal General Sales Tax. Complying with the demands will increase IMF’s trust in Pakistan, but at the expense of the public.
However, many top economists advised against IMF’s suggestions for Pakistan on the basis that they are harmful to the country’s economic prosperity.
Regarding this, top US economist Arthur B Laffer advised Pakistan to refrain from listening to the IMF. He made the comments during a keynote address on Pakistan Prosperity Forum 2021 organized by PRIME in Islamabad.
According to him, government regulations and taxes are hurdles in the path of incentives.
“Don’t let the IMF/WB dictate you because you are not a slave to them,” Dr. Arthur Laffer said.