According to an IMF report, the Pakistani government will adopt a new set of IMF requirements as part of the $6 billion loan package, despite financial experts doubting the country’s capacity to meet the required growth rate.
According to a report released by the IMF this week along with the $1 billion tranche of the revived $6 billion program, Pakistan has been asked to implement seven conditions, including personal income tax (PIT) reforms, electricity rate hikes, cut in the slab for lifeline consumers, phasing out of refinance schemes, and recapitalization of two private banks, before the next performance review, which is expected in April this year.
The requirements were already in place, according to sources familiar with the situation, but the administration may have decided to implement them in a “phased” rather than immediate manner.
“The state of government quarters in Islamabad came as no surprise.” According to Dr. Vaqar Ahmed, joint executive director of the Islamabad-based Sustainable Development Policy Institute (SDPI), “these requirements were initially established and the government had urged that they be implemented in later phases.”
“The administration realized that enforcing all of the conditions at once would be impossible, therefore they sought time to do so in stages.”
According to the revised terms, the government has promised to modify personal income tax “by lowering the number of rates and income tax brackets (slabs) to simplify the system and promote progressivity,” according to the IMF report.
“The authorities are in the process of crafting PIT legislation by the end of February 2022 to ensure that it will be ready to go into effect on July 1, 2022 with the FY2023 budget,” it states, adding that it will lower the number of rates and income tax bands, as well as bring in more taxpayers.
The income tax measures, which are said to safeguard low-income households, are expected to generate revenue gains of 0.3 percent of GDP in 2019.
The income tax measures, which are supposed to safeguard low-income people, are expected to generate revenue gains of 0.3 percent of GDP in Fiscal Year 2024.
Economists predict that the new measures will burden individuals who already pay taxes, but government officials insist that they will target those who aren’t.
“The measures would impact the existing segment of taxpayers,” Dr. Ahmed explained, “since the bulk of individuals who have filed new tax returns have submitted zero income.”
The draught for the revisions has yet to be made, according to Muzzamil Aslam, a spokesman for the Pakistani finance ministry, but those who are not in the tax net would be tapped.
“We need to raise income taxes, and those who are outside the tax net will be targeted,” Aslam told Arab News. “A formula will be devised for that, and work on it has not yet begun.”
By the end of February, the government plans to lower the protected consumer slab threshold to 200 units per month from 300 units per month, break down unprotected 301-700 unit slabs into smaller slabs of 100 units each, and expand the definition of lifeline consumers (to include residential consumers with a consumption of 50-100 units per month) under the energy subsidy reform for residential consumers.
“The issue is that in our country, roughly 70% of the connections are considered lifelines. Our recovery ratio suffers as a result,” said Aslam, who also represents the energy ministry.
“People have many links, which allows them to stay under the 300-unit level, therefore we need to look at the circular debt and recoveries.”
“Banks’ housing lending targets could offer risks to financial stability and involve a misallocation of credit,” the IMF said, urging the authorities to “unwind” lending to the housing and construction sector.