ISLAMABAD: Finance Minister Mohammad Aurangzeb on Sunday underscored the urgency of implementing structural reforms to reshape the country’s economic “DNA,” aiming to ensure that Pakistan will not require further assistance from the International Monetary Fund (IMF).
Speaking at a press conference, Aurangzeb acknowledged that these reforms may lead to short-term difficulties, but emphasised that they are crucial for achieving long-term sustainable growth.
Finance Minister also announced that in collaboration with provincial administrations, the government will soon sign a ‘National Fiscal Pact’, aimed at bringing uniformity to provincial taxes and boosting revenue collection.
IMF urges Pakistan to ‘move away’ from state-led growth model, calls for structural reforms
The agreement is set to formalise a unified approach between the federal government and all four provinces, with a focus on imposing taxes on agriculture and ensuring growth in provincial revenues, Aurangzeb added.
In a press conference held here, accompanied by Federal Board of Revenue (FBR) Chairman Rashid Langrial, Aurangzeb expressed his gratitude to the provincial chief ministers for their cooperation. “We have signed a staff-level agreement with the International Monetary Fund (IMF), and the provinces have agreed to impose taxes on the agriculture sector,” he stated. The plan also includes reducing federal and provincial expenditures and enhancing transparency in governance.
He revealed that a committee has been working on “right-sizing” the federal government to reduce public expenditures. “Decisions have been made about six ministries, including the dissolution of the Ministry of Capital Administration and Development (CAD), while two other ministries will be merged,” he explained. Additionally, the government is reviewing the structure of various ministries and subsidiaries, with plans for their reorganization already underway.
Aurangzeb added that 60 percent of vacant government positions totalling 150,000, have already been eliminated as part of an expenditure reduction strategy, which is expected to result in significant savings. “These are not just announcements; we are taking practical steps toward implementation,” he said, noting that five more ministries will undergo final restructuring this fiscal year, in accordance with the 18th Constitutional Amendment.
In a major step toward enhancing tax collection efficiency, the finance minister announced that the FBR will hire 2,000 chartered accountants to improve auditing capabilities. “We are taking steps to curb under-filing, which hides nearly Rs1.3 trillion in taxes,” Aurangzeb emphasised.
He further noted that tax collectors will be offered incentives to increase revenue collection.
Aurangzeb acknowledged the challenges posed by under-filing and tax evasion, stating that the government is focused on transparency and swift correction of errors. He also announced that non-filers will face stricter penalties, including being barred from purchasing vehicles and property or opening current bank accounts.
Addressing Pakistan’s economic outlook, Aurangzeb noted that the macroeconomic stability achieved through the recently concluded nine-month Stand-By Agreement (SBA) with the IMF.
The last week, the IMF board approved 37-month $7 billion Extended Fund Facility (EFF) for Pakistan and the first tranche of funds has already been received,“ he confirmed.
He emphasized on the structural reforms and macroeconomic stability, which he said are crucial for sustainable economic progress.
“Inflation, which once stood at 38 percent, has now declined to single-digit, and the policy rate has been lowered due to falling inflation rates,” he stated.
Aurangzeb also highlighted improvements in Pakistan’s foreign exchange reserves and exports, noting that there has been a 29 percent year-on-year increase in IT exports. “The economy is on the right track, and we are witnessing positive trends in key economic indicators,” he asserted.
The finance minister reiterated the government’s commitment to reforming state-owned enterprises (SOEs) and ministries to ensure they function effectively for the public. “We are working to improve performance and transparency, and any ministry or institution that remains will be restructured for optimal efficiency,” he said. As part of this effort, the government is also addressing pension reforms, which will require amendments to the Civil Servants Act to provide legal backing for future pension plans.
Aurangzeb discussed the ongoing efforts to combat smuggling, which has a Rs750billion impact on tax revenue. The government is establishing digital checkpoints at major border crossings to curb illicit trade.
Additionally, he stressed the need to increase the tax base by bringing more manufacturers and wholesalers into the sales tax net. “Only 14 percent of manufacturers and 25 percent of wholesalers are currently registered for sales tax, which is unacceptable,” he said.
He warned that non-compliant businesses would face strict measures, including the seizure of property, disconnection of utilities, and the blocking of mobile services. “We are using technology to minimize direct contact between businesses and tax authorities, ensuring greater transparency,” he explained.
Aurangzeb also outlined the government’s long-term goals of joining the Group of 20 (G20) by increasing the level of documented economic activity. “The cash market in Pakistan is worth Rs 9 trillion, but only Rs 325 billion is documented,” he said, stressing the need for reforms that will increase transparency and boost tax-to-GDP ratios.
He said that 723,000 new taxpayers have registered so far this year, bringing the total number of taxpayers to 3.2 million, up from 1.6 million last year. He also highlighted that non-filers will no longer be allowed to purchase property or vehicles, a significant step in the government’s push to increase tax compliance.
He acknowledged that while these reforms may cause short-term discomfort, they are vital for Pakistan’s long-term economic sustainability.
He pointed to two key challenges facing the country: an unsustainable population growth rate of 2.5% and the growing threat of climate change. He stressed the importance of addressing these issues in conjunction with economic restructuring, with the goal of making this the last IMF loan program Pakistan will need.
“Bringing structural reforms is not just an IMF requirement, but Pakistan needs them,” Aurangzeb said. He added that macroeconomic stability achieved during the first quarter of the current fiscal year provides a foundation for inclusive and sustainable growth, but it must be maintained to ensure long-term success.
He further emphasised the government’s commitment to consulting local think tanks while considering foreign advice for its home-grown economic reform agenda. “The measures we have taken are already showing positive results as indicated by economic indicators,” Aurangzeb said, noting that these improvements are visible through practical outcomes.
Addressing tax reforms, the minister revealed that the government plans to implement a new interface to monitor taxpayer activity and prevent harassment by auditors. He acknowledged the need to fix loopholes in the tax collection system, stressing the importance of controlling under-filing in a “structured and professional manner.” Independent auditors will be involved in the process to ensure fairness and transparency.
Aurangzeb also touched on the concerns of international investors regarding stalled dividends and profits in Pakistan. “This is a frequent topic in our meetings with international stakeholders,” he said. “We must resolve this issue to maintain investor confidence.”
In closing remarks, the finance minister encouraged the industry to focus on the Karachi Interbank Offered Rate (Kibor) rather than the policy rate. He noted that the Kibor is currently in negative territory and expressed optimism that as inflation falls, the policy rate will follow suit. Aurangzeb warned that without reforms, Pakistan will continue to rely on its salaried class and manufacturing sector for taxes, emphasising the urgency of changing the country’s economic “DNA” to ensure that this is the last IMF program Pakistan requires.
Replying to a question about additional financing from IMF for mitigating climate change impact, the minister said that the matter was raised earlier, but Pakistan was urged for focusing on one programme at a time.
Copyright Business Recorder, 2024
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