PAKISTAN has agreed with the International Monetary Fund (IMF) to increase tax rates on fertilizers, pesticides and sugary items as well as raise the GST rate to the standard 18 percent on selected goods. The measures come as part of efforts to complete the second review and secure the third tranche of $1 billion under the $7 billion Extended Fund Facility (EFF), along with the first tranche of $200 million under the $1.4 billion Resilience and Sustainability Facility (RSF). The government has also assured the Washington-based lender that it will fully deregulate the sugar sector, continue tariff adjustments in the power sector and reduce system losses and cut costs. A nationwide installation of point-of-sale systems for 40,000 large retailers will be completed over the next two years, while all the four provinces will move toward harmonized sales tax procedures.
The government is celebrating the release of another tranche of the ongoing $7 billion programme with the IMF and the remarks made by the global lender about the strength of Pakistan’s economy, which was able to withstand pressures caused by the unprecedented floods and rains as well as the conflict with India. No doubt, smooth continuation of the programme transmits a positive message to investors and economic partners. However, the staff report of the IMF shows the government has committed to taking a number of measures in the face of revenue shortfall that will potentially increase inflation and make life of the people miserable. If revenue were to fall short of expectations by end-December 2025, the Pakistan authorities plan to adopt additional measures to safeguard the fiscal targets, including increasing excise duty on fertilizers and pesticides by five percentage points, introducing excise duty on high-value sugary items and broadening the sales tax base by moving select items to the standard rate. The IMF has also stressed sustained reforms in taxation, governance, state-owned enterprises and energy to secure long-term growth. Reforms are understandably but unfortunately, in our context, these mean increase in rates of taxes as is confirmed by the intention of the Government to hike GST on many items; upward adjustment of electricity and gas tariffs; and further devaluation of rupee despite the fact that this policy has not earned any dividends for the economy. The woes of the people will surely complicate as Prime Minister Shehbaz Sharif has directed the Federal Board of Revenue (FBR) to widen the tax net and intensify efforts to raise Pakistan’s tax-to-GDP ratio to 11 per cent to achieve tax revenue targets. As the Government has miserably failed to generate additional revenue from potential sectors and avenues, in all likelihood the burden will be passed on to the ordinary citizens.
