Talks between Pakistan and International Monetary Fund (IMF) on the fourth review under the $6.64 billion Extended Fund Facility (EFF) would begin today (Wednesday) in Dubai wherein the Fund would review the economic situation of the country before deciding to release another tranche.

The 10-day long discussions with the IMF would start from today (Wednesday) and conclude on August 15. The Fund would release the fifth tranche worth of $550 million in August or September if Pakistan’s economic team satisfies the international lender on its economic situation of the country.

Pakistan had already received fourth tranches worth of $2.2 billion under EFF during the previous financial year 2013-14. Finance Minister Ishaq Dar is likely to head the policy-level discussions with an IMF team led by Jeffrey Franks from August 11. Technical-level discussions would begin from August 6. Officials of budget wing Finance Ministry, State Bank of Pakistan as well as officials of Federal Board of Revenue (FBR) and Ministry of Water and Power would take part in technical-level discussions.

Sources in Finance Ministry informed that government would brief the Fund on the economic situation of the previous financial year, ongoing privatisation programme, elimination of the tax exemptions granted through SROs, broadening of tax base, amendment in State Bank of Pakistan act 1956 and issues related to the power sector of the country.

Sources further informed that government might face tough time on the performance of the Federal Board of Revenue during last fiscal year and in the area of power sector’s reforms and granting autonomy to State Bank of Pakistan. The government has lesser to defend in power sector, as it is facing even a greater challenge with respect to recoveries that increased considerably during the last one year. Line losses have not decreased significantly and the menace of circular debt has resurfaced with over Rs 300 billion within a year.

On autonomy of State Bank of Pakistan, Pakistan would informed the Fund that government has moved SBP (Amendment) Bill 2014 in the National Assembly (for change in the SBP Act 1956) to comply with an IMF agreed benchmark with the objective of enabling it to take decisions appropriate to contain inflation and not be merely an extension of fiscal policy.

Sources were of the view that government might face tough time in negotiations over the poor performance of the FBR. The tax department had failed to broaden the tax base of the country by bringing wealthy and rice non-taxpayers into tax net and missing of revenue collection target during previous fiscal year despite revising its several times.

The FBR’s plan to bring wealthy non-taxpayers into tax net did not yield desire results. After serving two notices required under the income tax law, the FBR has generated tax demand of Rs11 billion out of which the collection so far remains very low. The FBR has collected just Rs306 million out of this initiative clearly indicating that the IMF’s condition to broaden the tax base has miserably failed to yield any substantial result.

 The incumbent government had devised a plan to bring 100,000 wealthy non-taxpayers into tax net every year in next five years in a bid to broaden the tax base of the country. However, the government had failed to produce encouraging result from the broadening of tax base, as only 17,314 people have filed their income tax returns out of total notices issued, 1,20,350, during last fiscal year 2013-14. Meanwhile, more than 38,000 second notices (under section 122C) which are to be followed by provisional assessment, collection procedures, and penal and prosecution proceedings.

Similarly, the government would also face music on missing tax collection target despite revising it several times. The FBR had fixed its target at Rs2475 billion in last fiscal year, which was revised downward to Rs2345 billion and again to Rs2275 billion. However, the tax department even failed to achieve its revised target by the end of June 2014 despite taking additional taxation measures.

The FBR collected Rs 2266 billion during previous fiscal year 2013-14 against the twice-revised tax collection target of Rs 2275 billion, leaving shortfall at Rs9 billion.