Pakistan presents PKR 170 billion ‘mini budget’ to secure IMF loan

According to reports, the Pakistan government proposed to increase the general sales tax (GST) from 17 per cent to 18 per cent.

Pakistan Finance Minister Ishaq Dar on Wednesday introduced a mini-budget proposing new taxes to raise 170 billion rupees ($640 million) in extra revenue during the current fiscal year ending July.

Dar tabled the Finance (Supplementary) Bill 2023 in the nation's National Assembly to fulfil the requirements set by the IMF and revive the stalled loan programme to avert Pakistan from defaulting on its debt.

According to World Asia report, Pakistan government proposed to rise the general sales tax (GST) from 17 per cent to 18 per cent.

• Tax on luxury items to increase from 17 per cent to 25 per cent
• New taxes of 20 per cent of the airfare or Rs50,000, whichever is higher, on first class and business class air tickets
• 10 per cent adjustable withholding advance tax on the bills of wedding halls
• An 18% sales tax will be levied on perfumes and branded perfumes.
• Sales tax on laptops, LED TVs, LCD TVs, smartphones, iPads and other electronic items, including juicers, blenders and other electronic machinery to 18%.
• Increased taxes on cigarettes and sugary drinks
• New taxes on cement from Rs1.5 per kg to Rs2 per kg

The Pakistan government has received a memorandum on the terms and conditions from the IMF for the completion of a USD 7 billion loan programme.

An IMF mission visited Islamabad from January 31 to February 9 to hold discussions under the ninth review of the authorities' programme supported by the IMF Extended Fund Facility (EFF) arrangement.

Pakistan, whose foreign exchange has dropped below USD 3 billion, is in desperate need of financial assistance and a bailout package from the IMF to prevent it from economic collapse.

The successful completion of the ninth review will bring the cash-strapped country USD 1.2 billion in the form of the next tranche.

As the visiting delegation left without a concluding statement, there was some confusion about the outcome of the talks and whether a draft MEFP had been shared.

SDRs are international reserve assets created by the IMF in 1969 and are allocated to member states to supplement existing official reserves.

Outlining the policy measures agreed upon between the government and the IMF, Dar said taxes amounting to170 Billion Rupees would be imposed.

He added, however, that the government would try to ensure that the taxes did not directly burden the common man.

To impose the taxes, the government would introduce a finance bill or ordinance, depending on the situation at the time, he said.

"Secondly, we will implement the agreed-upon energy reforms through the federal cabinet," he said, adding that the primary focus would be on minimising untargeted subsidies and reducing the "flow" in the gas sector to zero so there was no addition to the circular debt.

Talking about electricity prices, Dar said the country's generation cost was around 2-3 trillion Rupees while only Rs 1.8 trillion was recovered, which resulted in an increase in either the circular debt or fiscal deficit.

However, the entire difference in amount would not be recovered by increasing the tariff, he said.

The IMF in its concluding statement said: "The IMF team welcomes the prime minister's commitment to implement policies needed to safeguard macroeconomic stability and thanks the authorities for the constructive discussions." The statement underlined key priorities, including strengthening the fiscal position with permanent revenue measures and reduction in untargeted subsidies, while scaling up social protection to help the most vulnerable and those affected by the floods; allowing the exchange rate to be market determined to gradually eliminate the foreign exchange shortage; and enhancing energy provision by preventing further accumulation of circular debt and ensuring the viability of the energy sector.

Pakistan's foreign exchange reserves fell to USD 2.916 billion during the week ending on February 3. Experts believe that the country's reserves are enough for only 16 or 17 days of imports.

Pakistan inked a USD 6 billion IMF programme in 2019, which last year expanded to USD 7 billion.

Earlier, talks on the review were originally scheduled to be held in October but were delayed after Dar refused to implement some of the conditions of the fund after taking the finance ministry from Miftah Ismail.

The availability of IMF money will avoid the default but it is feared to bring a tsunami of price hikes.

with PTI inputs