The International Monetary Fund (IMF) has presented a preliminary proposal to Pakistani authorities outlining key prerequisites for a potential new loan program. These conditions are poised to exert significant influence on the forthcoming federal budget for the next fiscal year.
In response, the Pakistani economic team has initiated the process of finalizing the budget, taking into account the IMF’s stipulations. Among these conditions, the IMF has suggested a tax revenue target of 1290 billion Pakistani rupees for the upcoming fiscal year, while the Federal Board of Revenue (FBR) advocates for a slightly lower target of 1250 billion rupees.
Sources indicate that ongoing virtual discussions and online meetings between the Pakistani economic team and the IMF are making progress. One notable proposal from the IMF entails raising the standard rate of the General Sales Tax (GST) from 18% to 19%, a move anticipated to yield an additional 180 billion rupees in revenue for the FBR over the next year.
Moreover, the IMF has recommended augmenting the tax rate for individuals with higher incomes, proposing an increase in the maximum rate from 30% to 40%. Furthermore, the IMF has advised streamlining the tax structure for government employees by reducing the number of tax brackets from seven to four.
Additionally, the IMF has proposed abolishing the fifth schedule from the Sales Tax Act, which pertains to zero-rating, and subjecting all items except exports to the standard GST rate. The IMF also suggests eliminating unnecessary tax exemptions listed in the sixth schedule and restricting tax concessions outlined in the eighth schedule solely to essential food items, healthcare, and education-related goods, with a proposed tax rate of approximately 10%.
Officials from the Ministry of Finance indicate that the budget formulation process is reaching its final stages. With negotiations underway for a new IMF program, the government is expected to incorporate the agreed-upon conditions into the upcoming budget, paving the way for the approval of a staff-level agreement and subsequently enabling Pakistan to secure a new three-year loan program from the IMF.
