ISLAMABAD: In order to ensure a successful and seamless conclusion of the 37-month $7 billion program, Pakistan assured the International Monetary Fund (IMF) on Thursday that it would make up for some previous slippages before the first biannual review, which is due in February, and remain steadfast to subsequent targets.
On Thursday, Mahir Binici, the IMF’s new resident representative in Islamabad, received the assurance from Finance Minister Muhammad Aurangzeb. Additionally, the minister promised Mr. Binici “a smooth day-to-day consultation.”
According to a recent briefing by the finance minister and secretary of finance to the National Assembly’s Standing Committee on Finance, Pakistan has so far failed to meet at least three targets. These targets include revenue targets, debt maturity, and provincial legislation for additional taxes within their respective jurisdictions, such as sales tax harmonisation, real estate tax, and agricultural income tax.
Concerns were raised by a few missed targets by government officials and IMF employees. Since then, in response to certain provinces’ lackluster results, the federal government has been preparing to hold more talks with the provinces in an effort to make up for the loss.
In an official statement, the minister reaffirmed “Pakistan’s commitment to ensuring a smooth and successful completion of the 37-month programme” of IMF-funded macroeconomic reforms and structural adjustments during the meeting with the IMF resident representative.
As the minister was reported as stating, “The government is very clear that the trust and credibility we have regained over the last 14 months must be maintained to lay the path for an inclusive and sustainable growth.” Weak areas, missed goals, and ways to make up for the loss are thought to have been discussed during the discussion.
In his testimony before the parliamentary panel, Secretary of Finance Imdadullah Bosal stated that Pakistan “missed” targets for the first-quarter revenue target, raising the weighted average time to maturity condition for provincial legislation and domestic debt, with the final target due at the end of October and the first two for the end of September.
Although the federal government asserts that certain spending obligations from the federal government must be transferred to the provinces in accordance with the 18th amendment to the Constitution, such as additional funding for social protection, health care, higher education, and regional public infrastructure investment, these claims are taking a long time to come to fruition and are encountering opposition.
The federal government and the IMF anticipate that the provinces will take action to step up their own tax collection operations in the areas of property tax, agricultural income tax, and sales tax on services.
In order to achieve this, the provinces had to complete the necessary legislative changes to align their Agricultural Income Tax (AIT) regimes with the Federal Personal Income (small farmers) and Corporate Income (commercial agriculture) tax regimes by the end of October. The new regime would then start taxing agricultural income on January 1, 2025.
In order to combat tax evasion, the provinces are also anticipated to change the GST on services from a positive list to a negative list approach. This change is anticipated to take effect at the beginning of FY26 and aims to increase corporate tax revenues in agriculture and GST on services, in addition to provincial tax efforts to expand other revenue collection avenues.
Along with implementing the required administrative reforms to close the tax compliance gap, including for the GST, they would also establish, administer, and collect revenue under a common approach to property taxes. The creation of pertinent tax policies, such as property taxes, and the requisite legislative and administrative adjustments to put them into effect will be added to the National Tax Council’s mandate.
Provinces “shall provide additional contributions for Higher Education to the Federal Government supported initiatives of the Higher Education Commission (HEC)” in terms of budget. Spending on health and education programs as a percentage of GDP will be gradually restored by the federal and provincial governments.
