EDITORIAL: At last, the IMF (International Monetary Fund) has announced reaching a staff-level agreement (SLA) with Pakistan for a USD 7 billion, 37-month EFF (Extended Fund Facility), putting an end to the mystery about the bailout facility that we were first told was going to begin with the new fiscal year.
Now all that’s left is approval by the Fund’s executive board and rollovers and disbursements from friendly countries – the UAE, Saudi Arabia, China – will also follow.
Apparently, as the finance minister said just one day before this announcement, there are also plans to “request the IMF, at a later stage, for augmentation of the EFF through a Resilience and Sustainability Fund (RSF)”.
That, if the last couple of weeks are anything to go by, should suffice to trigger another sugar rush in the market and grab a few more flattering headlines for the government.
But the big question, about the day after, is still not being addressed. What’s the plan if, rather when, the new tax regime fails?
How will the finance ministry create fiscal space when some of the immense tax pressure piled on the working classes needs to be removed – lest it spark social unrest? Interestingly, the finance minister followed the good news about progress with the IMF with breaking news about reaching, “in principle”, an understanding with the provinces with regard to taxing agriculture income.
Maybe it’s the unprecedented pushback since the budget, about the government never taxing the usual holy cows, especially agriculture, that prompted this baby step on the part of the finance ministry.
However, if only it displayed the same seriousness in taxing all sectors as it does in squeezing the life out of the middle- and lower-income groups, it would not always just helplessly lament the inadequate and unsatisfactory tax-to-GDP ratio. It would simply get the job done and keep the economy’s real engine from burning out.
It’s not just that these are extraordinary times, with nothing less than the threat of default just round the corner. It’s that ensuring equitable tax distribution is one of the foremost responsibilities of any properly functioning democratic dispensation even in the best of times.
Yet here we are, with feudal and industrial barons lording over parliament and still keeping themselves and their cronies comfortably protected from the tax net.
One solution, as argued before in this space, is for the centre to simply calculate an agri tax, on the same lines as ordinary Pakistanis are taxed, deduct that amount from the provincial NFC share if the units are not exactly forthcoming and bring about a meaningful increase in the overall tax collection.
Only then will the Fund agree, albeit reluctantly, to less harsh upfront conditions for subsequent tranches of the bailout money. But the political will needed for such initiatives is just not there.
The finance minister promised to tax all sectors all way to the budget. Yet he didn’t do it, even though he’s still making the same claim.
For him to say now, this late in the IMF talks, that an understanding has been reached with provinces, that too just “in principle” so far, falls short of the kind of seriousness that this issue is crying out for. One can only wait and see how these negotiations roll on.
Copyright Business Recorder, 2024