In order to secure the next $502 million loan tranche from the International Monetary Fund (IMF), Pakistan has agreed to slap roughly Rs40 billion in additional taxes to bridge the shortfall in its revenue targets. In return, the IMF agreed to give Pakistan two waivers after it failed to deliver on two key conditions — the quarterly target of restricting the budget deficit to Rs306 billion and reduction in Net Domestic Assets (NDA). With the fresh waivers, the lender has so far given Islamabad 14 waivers in the nine reviews of Pakistan’s economy, highlighting its lenient policy towards implementation of structural reforms. Ishaq Dar said the staff level agreement was subject to the approval of the IMF board, which, according to Dar, is expected to meet on December 15.
The three-year $6.2 billion EFF programme is built on five key conditions, known as quantitative performance criteria, and many structural benchmarks. To secure the next loan tranche — and then take misplaced pride in increasing the country’s foreign exchange reserves — the government will introduce another mini-budget. Imposing taxes on ‘luxury’ items, which include goods such as yoghurt, cheese, chocolates and butter, will be the government’s next strategy. Capital gains and withholding tax rates, as well as sales tax on petroleum products, have already been increased. The power subsidy has also been cut back, although power outages continue to darken the mood. There are not a lot of other avenues available to the government which it could tap, especially if the tax machinery continues to fail in meeting revenue collection targets. Austerity measures, as claimed by the finance minister, have already been put in place. The IMF’s usual buzzwords provided little solace as it has set a two-week deadline for introducing the new taxes. The citizenry will have to brace itself for yet another mini-budget, which will probably highlight yet again the creativity of our policymakers to come up with new tax heads. This is something that has happened in the past as well. Yet, we wonder, why tax revenues continue to fall short of targets.
pk.shafaqna.com
