Non-Filers to Face Tougher Penalties, Warns Finance Ministry After IMF Agreement

IMF Agreement

ISLAMABAD: Following the International Monetary Fund’s (IMF) Executive Board approval of a $7 billion Extended Fund Facility (EFF), Pakistan’s Finance Minister Muhammad Aurangzeb announced plans to impose stringent restrictions on non-filers.

These restrictions aim to curtail their ability to conduct various activities, as part of a broader effort to increase tax compliance.

The Washington-based IMF secured the deal with Islamabad, with the first $1.1 billion tranche expected to be released by September 30, 2024. Sources from the Ministry of Finance revealed that the loan’s interest rate is less than 5%, and the IMF is likely to disburse the second installment within the fiscal year.

To secure the IMF deal, Pakistan implemented a series of measures, including expanding the tax net, taxing agricultural income, and raising the prices of electricity and natural gas. In an interview with Voice of America, Finance Minister Aurangzeb stressed the importance of these economic reforms, highlighting the goal of making the current IMF programme the last for the country.

He emphasized the need for structural reforms to transition Pakistan’s economy into an export-driven one, a necessary step for future growth over the next three years. Aurangzeb added that friendly countries have assured financial support through the new IMF programme.

Acknowledging the need for broader tax reform, the minister pointed out that despite a 29% revenue increase in the past year, Pakistan’s tax-to-GDP ratio remains a low 9%, which is insufficient for economic stabilization. He emphasized bringing sectors such as retail, wholesale, agriculture, and real estate into the tax net, aiming to reduce the burden on the salaried and manufacturing classes.

As part of the IMF’s conditions, the federal government presented a tax-heavy budget for FY2024-25, targeting Rs13 trillion in revenue by July, a 40% increase from the previous fiscal year, to reduce the nation’s crippling debt.

In line with this strategy, Aurangzeb revealed plans to abolish the “non-filer” category and impose strict limitations on tax evaders. The Federal Board of Revenue (FBR) has already announced a set of restrictions, including bans on purchasing property, buying cars, investing in mutual funds, opening current accounts, and traveling internationally for purposes other than religious ones.

The abolition of the non-filer category means individuals can no longer pay small fees to avoid taxes on these activities.

Aurangzeb also disclosed that the government has data on individuals’ lifestyles, including their assets, international travel, and expenditures, enabling the FBR to bring tax evaders into the tax system without making arrests. Pakistan’s undocumented economy, valued at Rs9 trillion, is set to undergo documentation.

On a broader front, Prime Minister Shehbaz Sharif met with IMF Managing Director Kristalina Georgieva on the sidelines of the UN General Assembly in New York.

The prime minister expressed his appreciation for the IMF’s support, technical assistance, and capacity-building programs, which have strengthened Pakistan’s economic institutions.

Both leaders discussed climate change adaptation financing and agreed on continued cooperation between Pakistan and the IMF to ensure economic stability and growth.

Aurangzeb’s economic reforms, coupled with the government’s privatization efforts, reflect a strong commitment to revitalize Pakistan’s economy and reduce its reliance on external financial support.