IMF negotiations result in hefty tax increase of Rs170bn

Islamabad: Finance Minister Ishaq Dar Friday announced a 170 billion tax increase following International Monetary Fund (IMF) talks, which is expected to have a significant impact on the economy. 

While talking to the media in Islamabad today, the federal minister stated that the increase was necessary in order to ensure that the country is able to meet its financial obligations and maintain a balanced budget. 

"Virtual discussions will continue on Monday," said Finance Minister, adding that considerable progress had been made. 

Ishaq Dar said we received Memorandum of Economic and Financial Policies (MEFP) from the IMF earlier today. 

The finance minister confirmed that the government had received the Memorandum of Economic and Financial Policies (MEFP) draft from the global lender early today. 

Sharing broad contours of the understanding reached with the IMF, the minister said that taxation measures of 170 billion rupees will be taken as opposed to the rumours of 700 to 800 billion rupees.

Ishaq Dar said reforms in the energy sector will be implemented and the main thrust of it is to check the flow of the circular debt. He said the circular debt in the gas sector will be brought to zero while untargeted subsidies will be minimized. 

“These decisions in fact are in the country's own interest to fix the economy,” said Dar. 

The Finance Minister said commitment vis-a-vis Petroleum Development Levy has almost been fulfilled. 

He said it has been decided to increase the budget of Benazir Income Support Program by 40 billion rupees from 360 billion rupees to 400 billion rupees in order to reduce the burden of inflation on the most vulnerable segments of society. 

He also added that the government focused on ‘minimising untargeted subsidies’.

The Finance Minister said Prime Minister Shehbaz Sharif, during a Zoom meeting with the IMF Mission, expressed Pakistan's resolve to fulfill the commitments. He recalled that the agreement was signed by the previous government back in 2019.

Ishaq Dar said the next tranche will be released to Pakistan after approval by the lender's executive board.

The IMF has welcomed the commitment of Pakistan's government to enforce policies needed to buttress the stability of the country's economy, he said. 

“Pakistan needs to press ahead with key reforms to strengthen finances and reduce debt,” he said, stressing that Pakistan's economy was destroyed in the last five years, owing to mismanagement and a credibility gap.   

The IMF had previously urged the government to impose higher taxes in order to stimulate economic growth and reduce the budget deficit, he added.

The new taxes are expected to be implemented in the coming months and will affect businesses and individuals alike. 

Last week, Prime Minister Shehbaz Sharif said the government would have to agree to IMF bailout conditions that are “beyond imagination”.