The federal government has decided to introduce a mini-budget worth more than Rs 40 billion to meet the tax collection target to fulfil the preconditions set by the IMF for releasing two IMF tranches worth $1.17 billion. Under this decision, the government plans to impose additional taxes on multiple sectors, including fertiliser, sugar, tobacco, and textile. Taxing multiple sectors is part of the government’s efforts to save Pakistan State Oil (PSO) from bankruptcy. Therefore, additional taxes will be imposed on four major sectors through an amendment in the finance bill.
On August 4, the federal government recently decided to withdraw tax on electricity bills for one year following the pressure from traders over the fixed-tax regime. However, the abolition of tax has caused a loss of Rs 40 billion in revenue. Therefore, a new mechanism has been proposed to collect taxes. The Federal Board of Revenue’s (FBR) Inland Revenue wing is preparing outlines and proposals for the mini-budget after the government was forced to reverse its decision to impose fixed taxes on retailers.
Pakistan is expected to receive about $1.17 billion after fulfilling the IMF’s conditions for three to six weeks. According to the IMF Communication Department, under the ongoing program, the tranche would bring a total disbursement of about $4.2 billion from the IMF to Pakistan. This tranche will help to stabilise the economy, expand the social safety net to protect the most vulnerable, accelerate structural reforms, and help improve the macroeconomic situation in Pakistan.
According to the Finance Ministry of Pakistan, all the required actions have been taken, and now it is expected that the IMF board will approve the reviews and revised programme. Furthermore, to meet the higher financing needs in the fiscal year 2022-23, the IMF Board will consider an extension of the Extended Fund Facility (EFF) until end-June 2023 and augmentation of access by $1 billion, which will bring the total access under the EFF to about $7 billion.
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