IMF demands spending cuts or more taxes of $189bn

Islamabad: Pakistan on Monday informed the International Monetary Fund (IMF) that during the first quarter of the current financial year, the tax machinery collected Rs11 billion from retailers, wholesalers, and distributors as high-level talks headed by the finance minister began.

However, expectations regarding the Tajir Dost Scheme (TDS) have not been met and the tax collection through this particular scheme is only Rs1.7 million as per the latest available data against the target set for the first quarter was Rs10 billion.

Finance Minister Muhammad Aurangzeb started the first phase of talks with the IMF delegation on Monday evening.

Secretary Finance Imdadullah Bosal and Chairman Federal Bureau of Revenue (FBR) Rashid Mahmood Langryal started the first session with the IMF delegation which will be staying in Islamabad from November 11 to 15, 2024.

It is to see how the IMF responds but it seems that it will be difficult for the government to satisfy the IMF.

The IMF is suggesting two options: either present a mini-budget to cover the Rs189 billion revenue shortfall the FBR incurred in the first four months or a workable plan to reduce unrestricted costs should be developed.

A top official said TDS was meant to bring only retailers and wholesalers into the tax net but its target has been achieved as the FBR has collected an additional Rs11 billion from them through general taxation in the first quarter.

Under Sections 236G and 236H of the Income Tax Act, the FBR increased the tax rate by nearly 10 times on sales of products to non-filers, due to which retailers and wholesalers preferred to join the tax net under strict measures and fear. And deposit Rs11 billion as additional tax by September 30, 2024.

The number of return filers has also increased significantly, which has accelerated the process of documenting the economy in the country.

The IMF was briefed by top officials of the Power Division and the possibility of raising fixed rates for on-grid with reduced solar power systems. During the ongoing negotiations with the IMF, it may come up with stronger proposals.

Pakistan and the IMF began talks on Monday as a delegation of the fund's staff came to negotiate a middle-of-the-road proposal to avoid deviations from the fiscal and external frameworks set for the fiscal year.