ISLAMABAD: Even after positive trends were witnessed in the revenue generation, the International Monetary Fund (IMF) has asked Pakistan to impose about Rs600 billion in additional taxes and again urged Islamabad to set up an anti-corruption task force.
However, the authorities concerned have yet to accept the demand of imposing more taxes amid pinching high double-digit inflation – one of the leading factors behind evaporating political fortunes of the ruling alliance in the political capital and the opposition’s popularity.
The demands were put forth before the Pakistani authorities by IMF Mission Chief to Pakistan Nathan Porter along with half a dozen other conditions during recent interactions in Washington, according to government sources.
The matter will be discussed during the next round of the programme review talks that are expected to take place in November, offocials said.
The IMF is of the view that due to inflation-induced nearly 25% nominal growth of the economy in the current fiscal year, the tax-to-GDP ratio would fall below the agreed level even if the FBR achieves its annual target of Rs7.470 trillion, according to the sources.
At the time of the budget, the government had estimated the size of the GDP at Rs78 trillion on the basis of an average inflation rate of 11.5% and an economic growth rate of 5%. The Rs7.470 trillion annual tax target is equal to nearly 9.6% of the GDP, The Express Tribune.
However, due to various administrative measures, rupee devaluation, floods and food supply shocks, the average inflation is now estimated at 23% and the GDP growth rate is around 2%. After a spike in inflation, the projected size of the GDP for the current fiscal year is estimated at Rs83 trillion.
This would bring down the tax-to-GDP ratio to around 8.9% despite hitting the Rs7.470 trillion annual target by the FBR.
In order to stick to the macroeconomic framework targets, the IMF has estimated that Pakistan may have to take additional revenue measures equal to 0.75% of the GDP, which translates into over Rs600 billion, according to the sources.
The government has set the annual tax collection target of the FBR at Rs7.470 trillion, which requires a 22% growth rate over the last year’s collection. The FBR has collected over Rs1.61 trillion during the first quarter, surpassing its target by over Rs26 billion. But the growth rate in the collection was 17%, significantly lower than the prevailing inflation rate.
It is highly unlikely that the Pakistan Democratic Movement’s coalition government will accept such a demand. The main alliance party, the PML-N, has already taken the worst hit on its vote bank and popularity due to the increasing cost of living.
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