Pakistan’s Commitment to IMF: New Tax Measures and Economic Reforms Ahead
November 15, 2024
Islamabad: In a significant development for Pakistan’s economic future, the country has reaffirmed its commitment to the International Monetary Fund (IMF), ensuring strict adherence to the economic reform program, including the introduction of income tax in the provinces starting January 1, 2025. This announcement comes after the successful conclusion of a five-day review mission between Pakistan and the IMF.
According to Express News, during the negotiations, Pakistan convinced the IMF team about the implementation of a provincial surplus budget and assured them of the necessary external financing arrangements. Furthermore, Pakistan committed to hiring consultants to ensure the effective execution of the provincial fiscal agreements.
The IMF delegation, led by the mission chief, engaged in comprehensive discussions with Pakistani officials throughout the five-day talks. On the final day, the IMF team met in-depth with Finance Minister Muhammad Aurangzeb, discussing critical financial issues, including tax collection targets and the implementation of national financial agreements.
Taxation Reforms and IMF Expectations
In their final meeting, Finance Minister Aurangzeb assured the IMF of the government’s firm resolve to meet the program’s targets. The IMF emphasized the importance of achieving tax collection goals and adhering to the national financial agreement. The IMF also underlined the need for structural reforms in various sectors, with a particular focus on taxation.
A major point of focus during these talks was the introduction of income tax in all four provinces, which will be enforced starting January 2025. The IMF urged the government to ensure that agricultural income would also be taxed starting January. The government assured the IMF that the tax collection on agricultural earnings would commence on time.
Provinces’ Surplus Budgets and Financial Oversight
The IMF mission raised several questions regarding the provincial governments’ financial operations. Sources suggest that the provinces, especially Sindh, have been urged to expedite legislative actions related to fiscal matters. Meanwhile, Khyber Pakhtunkhwa has reportedly completed its preparatory work for the implementation of these fiscal measures.
Additionally, Pakistan confirmed that the necessary steps had been taken to secure external financing for the program. Talks also touched on the performance of the Federal Board of Revenue (FBR), which has faced challenges in meeting tax collection targets. Despite the ongoing challenges, the IMF has urged Pakistan to intensify efforts to meet the ambitious tax target of PKR 12.97 trillion for the fiscal year.
Energy Sector Reforms and Future Projections
In a bid to address energy sector inefficiencies, the IMF’s discussions also included suggestions for reforming the energy sector, particularly focusing on curbing the growth of solar energy initiatives. During these talks, the IMF team proposed raising the petroleum levy from PKR 60 per liter to PKR 70, in addition to imposing General Sales Tax (GST) on petroleum products. If accepted, this move is expected to lead to a significant rise in the prices of petrol and diesel by November 16.
IMF’s Role in Pakistan’s Economic Strategy
With the IMF team expected to return for another round of economic reviews in early 2025, the government’s financial strategies will be under close scrutiny. The IMF mission has emphasized the need for Pakistan to meet the prescribed targets and execute necessary reforms, including the introduction of agricultural taxes and the complete fiscal decentralization.
As part of the ongoing negotiations, the government has also committed to implementing the IMF’s recommendations regarding taxation, fiscal discipline, and energy sector reforms. However, it is clear that these changes will be vital for Pakistan’s economic stabilization and growth, with the IMF pushing for greater compliance and accountability in the months ahead.