Unclear Economic Situation
After the last price hike in fuel products, it is clear that the government is attempting to do all it can to bring the IMF bailout programme back. But so far, the decisions it has taken have not been sufficient to convince the funding agency that our economy is on the path towards fiscal stability.
There are reports that while the fuel price hike was necessary, there is a tussle on fuel tariffs that both sides have not been able to agree on. There are provisions in the budget for this tax on fuel commodities, but whether the government is hoping for international prices to reduce before looking to collect is anyone’s guess.
More importantly, the issue of taxation is likely to become a big stumbling block going forward. The IMF is reportedly not happy with the government’s decision to reduce the maximum tax rate to 32.5 percent from its original 35. This, and the reduction of slabs from 12 to 7 will also likely be a part of the discussions being carried out.
Importantly, as evidenced by the comments coming from the Senate Standing Committee of Finance after its review of the budget proposal, many of the sales taxes imposed in various sectors are also likely to be a point of discussion with the IMF. Pakistan is desperately seeking to reduce its import bill, but depending on who you ask, there will be claims that the government has done too much or too little to improve its collection figures through imported goods and domestic commodities.
The Federal Board of Revenue has often pointed to its ‘track and trace’ system in development and claims that collection will improve in a wide range of sectors once the collecting body has accurate and real-time data on various nodes in the supply chain.
The next few weeks will be crucial as details of the discussions between the government and the IMF get clearer. For now, we can expect a few rollbacks of relief measures promised in the budget, as the government tries to fall in line with the recommendations and finally restart the much-delayed extended fund facility.