ISLAMABAD: Pakistan and the International Monetary Fund (IMF) on Saturday concluded technical-level discussions on a ‘positive note’ and agreed to continue talks at a higher level in Washington from next week to put $6 billion Extended Fund Facility (EFF) back on track.
The policy-level talks will kick off early next week in Washington by a delegation from Pakistan led by Finance Minister Shaukat Tarin. He will leave for Washington on Tuesday along with senior officers, including State Bank of Pakistan governor Dr Reza Baqir.
A top government official told mediamen that the next 10-days policy level talks will cover remaining issues related to taxation and power sector. “Progress has been made in our discussions on individual-level issues,” the official said, adding that in some areas the progress was even more than his expectations.
“You will see the outcomes of these talks in Washington,” he said, adding that some more progress would be achieved at the policy-level discussions. However, he was not willing to describe the level of progress. “I will not disclose it right now,” he said.
At the technical-level discussions, the Fund’s officials were not happy with Islamabad’s U-turn on its commitments made in March 2021 related to withdrawal of sales tax exemptions, increase in personal income tax rates and increase in power tariff in June or July.
The government has already increased power tariff once in pre-condition and committed to increasing more in June or July, which was not implemented.
Pakistan has partially complied with its commitments by taking a few measures in the budget 2021-22 while ignoring other steps, including increasing power tariff, due to fear of political backlash from opposition parties.
In July 2019, the IMF had approved a 39-month $6bn EFF arrangement for Pakistan to support Islamabad’s economic reform programme.
The government has paused the IMF programme in June 2021 for three months and implemented its indigenous policy measures to shore up revenue instead of putting an extra burden on the existing taxpayers.
Sources said that Finance Minister Tarin had assured the Fund in June to achieve all targets set by it without additional measures as suggested by the IMF. The minister believed that his strategy of revenue generation was better than the one prescribed by the Fund, which paid dividends.
Sharing the outcomes, the Fund officials were informed that the revenue collection target for the first quarter was exceeded by Rs180bn, which is unprecedented.
The IMF normally accepts the outcomes in the shape of good figures as was the past practice. This time the Fund’s officials raised questions on revenue collection and termed it imports led. As a result, the IMF officials used a term for this achievement ‘unsustainable’, in a way to discredit the performance of the tax machinery.
The IMF-led policy prescriptions led to higher than expected depreciation of Pak rupee and subsequent inflation in the country. Both depreciation and inflation have contributed to the revenue collection, especially at the import stage as well.
Many tax experts believe that it is actually the reaction of the Fund over the government’s unwillingness to comply with its commitments made in March 2021, suggesting an additional tax burden on people.
On the sales tax exemptions, the Federal Board of Revenue (FBR) has already reviewed the list for possible withdrawal. “We have finalised the list and selected items for withdrawal,” an official said, adding that the list would only be related to those items which were used by rich people.
The IMF has already shared a list of 250-300 items with Pakistan in March 2021 for withdrawal of sales tax exemptions. It is a policy decision that government will not withdraw exemptions on those items, which are used by the common people. The FBR has already briefed the finance minister over the list and got direction from him as well.
According to the sources, Mr Tarin is not willing to withdraw exemptions on certain items and wants a reversal from an earlier commitment made in March 2021. The final decision on this issue will be taken in Washington.
The government seems unwilling to make any commitment to add another Rs500bn to the revenue target. “We can’t further increase tax target,” the official said, adding that the government was hopeful to cross the budgetary target of Rs5.8 trillion. “From where we will collect the additional revenue?” he questioned.
On the power side, the government sees no problems in talks with the Fund. “We are on track and power sector will not be an issue at the policy-level discussions,” the official said, adding that Pakistan expected that the IMF would be flexible in talks.