In tit-for-tat response, Pakistan says FY24 budget ‘was never a part of IMF 9th review’

In a detailed response to the International Monetary Fund’s (IMF) concerns, the Ministry of Finance said on Friday that the budget for fiscal year 2023-24 was “never a part of the ninth review”, a complete deviation from earlier reports that Pakistan was required to take the Washington-based lender onboard for the new taxation measures announced last week.

“Though the Budget FY24 was never a part of the 9th review, however, in line with PM’s commitment to the MD IMF, we shared the Budget numbers with the IMF Mission,” said the Finance Division in a lengthy statement.

“And we are continuously engaged with them even on the Budget.”

The Finance Ministry said it has reviewed the press statement of Esther Perez Ruiz, the IMF Resident Representative for Pakistan, in which the lender’s official expressed dissatisfaction with the budget proposals.

“The draft FY24 Budget misses an opportunity to broaden the tax base in a more progressive way,” Perez Ruiz told Business Recorder via message on Thursday.

However, the Ministry of Finance said since some specific issues have been raised in the press, “we think that it would be appropriate to clarify our position on these issues”.

“Before we go into the specific issues raised in the Press statement it is important to give the context of these talks,” said the ministry.

“The 9th IMF Review was conducted in early February 2023 and Pakistan government completed all technical issues at a fast pace. The only outstanding issue was of external financing which we understand was also amicably resolved in the Prime Minister’s telephonic call of 27th May 2023, with the MD of IMF.”

Moving on, the Ministry of Finance shared its position on the specific issues raised by the IMF official.

“As far as the broadening of the tax base is concerned, the FBR has added 1,161,000 new taxpayers i.e. 26.38% to its tax base in the last 11 months,” read the statement.

The Ministry termed the 0.6% advance adjustable withholding tax on cash withdrawals of over Rs50,000 as “another big step” in this direction.

The ministry said the tax exemptions announced in the budget are “triggers” of growth in the real sectors of the economy.

“This is the sustainable path to provide employment and livelihood to the common citizen. In any case, the amount is fairly small,” read the statement.

Perez Ruiz had said that “the long list of new tax expenditures reduces further the fairness of the tax system and undercuts the resources needed for greater support for vulnerable (Benazir Income Support Programme) BISP recipients and development spending”.

However, the ministry said the pro-poor initiatives in the budget are not limited to BISP beneficiaries whose budget in any case has been increased from Rs400 to 450 billion.

“There are millions of vulnerable people above the poverty line and the budget provides Rs35 billion for targeted subsidies on five main items of food consumption through the Utility Stores Corporation for families up to a PMT scorecard 40. This facility is also available for BISP beneficiaries,” it said.

The IMF official also came down hard on new taxation proposal that seeks to enhance the limit in sub-section (4) of section 111 of the Income Tax Ordinance 2001 to rupee equivalent of US$100,000.

Perez Ruiz said the amnesty runs against the IMF programme’s conditionality.

However, the Ministry of Finance dismissed the concerns.

“As far as the ‘amnesty’ is concerned, the only change is to ‘dollarize’ the value of an existing provision of I.T. Ordinance.

“This facility, which has always been there, is available under section 111(4) of the I.T Ordinance. The cap of Rs10 million (approx. $ 100,000 equivalent) was introduced in FY2016. The cap set in FY16 is being resolved in terms of Rupee equivalence of $100,000,” it said, referring to the ‘enhancement of monetary limit of foreign remittance remitted from outside Pakistan’ as a proposal in this budget’.

Lastly, the ministry said that the coalition government has taken “many difficult and politically costly decisions” to complete the ninth review.

“The government is fully committed to the IMF programme and is keen to at least complete the 9th review.

“We are not ‘doctrinaire’ about any element of the Budget FY24 and are keenly engaged with the IMF to reach an amicable solution,” it concluded.