Prime Minister Shehbaz Sharif on Wednesday vowed to enforce tough decisions to end the impasse with the International Monetary Fund (IMF).
The difficult choices include raising the prices for gas and electricity as well as announcing a minibudget for enacting additional taxing measures to raise Rs150-200 billion. The premier presided over an online conference Wednesday evening for almost three hours and thirty minutes, according to official sources quoted by The News. However, it is anticipated that this meeting will be held again on Thursday (today) to make more significant choices.
The State Minister for Petroleum Musadik Malik did not respond when questioned about the potential increase in the cost of gas and electricity. Sources familiar with the situation, however, stated that the average gas cost is anticipated to rise from Rs650 per MMBTU to Rs1,100 per MMBTU.
The government intends to recoup between Rs800 and Rs850 billion through the new price increase from the massive circular debt of Rs1,640 billion owed by SNGPL and SSGCL. In the meantime, during the current fiscal year, the government is proposing increasing the energy rate from Rs4.50 per unit in the first phase to Rs3 per unit in the second.
The government had set a target for FBR tax collection of Rs7,470 billion, however, up till December, FBR fell short by Rs225 billion. By a margin of Rs82 billion for the end of December 2022, the collection fell short of the IMF’s target.
The FBR’s internal assessment shows that the tax collection machinery will be facing a shortfall of Rs170 billion for the ongoing fiscal year, so the tax collection will be standing at Rs7,300 billion against the initially envisaged target of Rs7,470 billion.
To fulfill the shortfall by the FBR, the government will have to take extra measures that could fetch Rs300-400 annually. Imposing additional taxes and rate hikes would be an excruciating process, which the government would undergo through a possible presidential ordinance.
The Pakistan Muslim League Nawaz (PML-N) government plans to slap a 1 to 3% flood levy on imports to fetch Rs100 billion. Second, the government is reportedly considering charging a 60–70% tax on the purported profits made by commercial banks from manipulating the currency rate. The banks calculated that in the first nine months of the year 2022, unusual earnings totaled about Rs100 billion.
In addition, there will likely be a GST imposed on POL items as well as an increase in the Federal Excise Duty (FED) on cigarettes and sugary beverages. Ishaq Dar, the finance minister, strongly opposed placing a 17% GST on POL items in the past, claiming that it would be extremely inflationary.
How the government will react to the IMF’s demand to permit the rupee to weaken versus the US dollar is yet to be seen. Finance Minister Ishaq Dar will never let the depreciation of the exchange rate free fall but he will have to generate dollar inflows to improve the dollar liquidity crunch in weeks and months ahead.