Deferment of increase in taxes & energy tariffs: IMF turns down govt request

The government's request to defer additional taxation measures as well as an increase in energy tariffs till next fiscal year was not acceptable to the staff of the International Monetary Fund (IMF) during its recent second mandatory review mission of the US$ 6 billion Extended Fund Facility (EFF).

This prompted the IMF to note in its end of mission press release that "steadfast progress on program implementation will pave the way for the IMF Executive Board consideration of the review;" a sentiment echoed by the mission leader: "in the coming days progress will continue to pave the way for IMF Board's consideration of the review."

Sources in government informed Business Recorder that during the technical and policy level discussions the FBR acknowledged that total tax collections would not exceed Rs 4.7 trillion - a challenging target as it envisages 30 percent growth in revenue given the low projected growth rate with 33 percent tax collection on imports compromised due to import compression policies.

The budget target for FBR tax collection was 5.5 trillion rupees, projected at 5.238 trillion rupees in the first review report uploaded on the IMF website. With a projected 4.7 trillion rupees target that FBR sources maintain remains a challenge the government wants the IMF to agree to a 15 percent reduction in the budgeted target for the current year however reports indicate that the Fund is willing to concede a revised downward target of 11 percent.

The 11 percent target would require additional taxation measures of Rs 200 billion sources said, adding that the very survival of the government may be at stake if it increases taxes further or raises utility rates.

The government is hopeful of a temporary waiver however it would need to lobby in Washington DC if the IMF is to back down from its reportedly stated position at the end of the second review mission.

A highly placed source told the BR that Pakistan is in a catch 22 position: if it increases power tariff and imposes higher taxes, its survival would be in question; if it does not then IMF program would be in jeopardy.

The FBR has begun its exercise of how to generate an additional Rs 200 billion but its formula remains the same: increase taxes on existing tax payers which would further stifle economic activity in the country, constrict job opportunities and raise the numbers in poverty.

When contacted, FBR officials stated that the FBR has started an exercise to review Sixth Schedule (Exemption Schedule) and Eight Schedule (Conditional Exemption)) of the Sales Tax Act 1990 to levy 17 percent sales tax on certain items subjected to lower rates of sales tax (5, 7.5 and 10 percent) and withdraw some existing sales tax exemptions to generate estimated revenue to the tune of Rs200 billion in the remaining period of 2019-20.

The FBR faces administrative challenges as well as relying on a tax structure that is unfair, inequitable and anomalous. Increasing electricity tariffs would increase theft and further fuel the circular debt.

The focus, sources stated on condition of strict anonymity, must be to promote growth which would raise revenue collections and increase employment opportunities but, unfortunately the IMF programme projects a growth rate of 2.4 percent in the current year - a target that also may not be achieved.