IMF Demands Spending Cuts or Imposition of Rs 189 Billion in Additional Taxes
Islamabad, November 12, 2024
As high-level negotiations began, Pakistan informed the International Monetary Fund (IMF) on Monday that its tax machinery collected Rs 11 billion from retailers, wholesalers, and distributors during the first quarter of the current fiscal year. However, the much-anticipated Trader-Friendly Scheme (TDS) fell short of expectations, collecting only Rs 1.7 million in taxes, far below the target of Rs 10 billion for the first quarter.
Finance Minister Muhammad Aurangzeb initiated the first round of talks with the IMF delegation on Monday evening. The IMF has put forth two options: either present a mini-budget to bridge the Rs 189 billion revenue shortfall in the first four months or devise a feasible plan to curb unrestricted spending.
Challenges of the Trader-Friendly Scheme (TDS)
The TDS aimed to bring retailers and wholesalers into the tax net. Despite missing the target under this scheme, the Federal Board of Revenue (FBR) collected an additional Rs 11 billion through regular taxation in the first quarter. To incentivize compliance, the FBR increased tax rates almost tenfold for non-filers under Sections 236G and 236H of the Income Tax Ordinance, leading to increased tax collection from retailers and wholesalers by September 30, 2024.
IMF Demands and Government Response
The IMF delegation, which is staying in Islamabad from November 11 to 15, 2024, also engaged with top officials from Pakistan’s Finance Ministry, including Secretary of Finance Imdadullah Bosal and FBR Chairman Rashid Mahmood Langrial.
It remains to be seen how the IMF will respond, but satisfying their demands might be challenging for the Pakistani government. The IMF is seeking concrete steps to address the revenue shortfall, either through additional taxes or expenditure cuts.
During ongoing negotiations, the IMF was also briefed by senior officials of the Power Division, discussing fixed rate increases for on-grid solar energy systems. Strong proposals are expected to emerge as talks continue.
These negotiations come as Pakistan and the IMF work together to prevent deviations from the financial and external framework agreed upon for the current fiscal year.