Pakistan govt is ending most exemptions on sales tax, all sectors will pay a uniform 17% as part of a package of belt tightening measures aimed at securing approval for a $1 billion tranche of IMF funding.
Officials said: Govt is ending sales tax exemptions worth around PKR 300 billion ($1.70 billion) a year. A supplementary budget next week would also cut development spending.
Finance adviser Shaukat Tarin said:
“The IMF agreed last month to revive a stalled $6 billion funding programme but demanded further budgetary tightening from Pakistan before the next tranche worth some $1 billion could be approved. The IMF had demanded that the sales tax become an across-the-board sales tax of 17%, which currently is the highest level but only applicable to some goods and services. But the government will still work to provide relief to lower income workers and others hit by the tax. The IMF is not saying that you don’t give relief to people, but they’re saying don’t distort the tax ratio.”
Surging food and energy prices have put Prime Minister Imran Khan under increasing pressure over recent months as household bills have caused growing anger among the middle classes. That is why, Pakistan had been in talks with the IMF for several months to seek a relaxation in the terms and conditions of a bailout package agreed more than 2 years ago to shore up its fragile public finances.
The completion of the IMF review, pending since earlier this year, would make available 750 million in IMF special drawing rights, or around $1 billion, bringing total disbursements so far to about $3 billion. Pakistan entered the $6 billion, 39-month funding programme with the IMF in July 2019, but the funding stalled earlier this year due to issues over the required reforms.
Pakistan’s economy has been under heavy pressure with a historic decline in the rupee currency, inflation which reached 11.5% in November, a widening current account deficit and dwindling foreign reserves. The central bank raised its benchmark interest rate by 150 basis points last month to 8.75% to counter inflationary pressures and preserve stability with growth.