ISLAMABAD: Perturbed over delays and setbacks to Pakistan’s privatisation agenda, the International Monetary Fund (IMF) has asked the government to push provinces towards improved taxation from agriculture and properties and correct its own system of under-invoicing in customs duties to increase revenues.

In a conference call on Friday, IMF mission chief to Pakistan Harald Finger told media persons that Pakistan authorities and Fund staff had been engaged in detailed discussions over a series of measures to broaden tax net and increase tax-to-GDP ratio beyond 14.5 per cent by 2019-20.

He said Islamabad needed continued efforts against bad governance and corruption in the Federal Board of Revenue (FBR) to increase tax compliance. He said the discussions with authorities also focused on modernisation of property tax to make it market based in coordination with the provinces as well as issues in customs duty to manage under-invoicing.

“The various setbacks to the privatisation agenda are unfortunate,” said the IMF and noted that the authorities’ stronger focus on containing losses of the public sector enterprises (PSEs) in the interim was appropriate.

The staff report simultaneously launched on the occasion asked the government to put in place alternate power sector debt reduction plan to offset setbacks to divestment of power companies and implement biannual adjustments in gas tariff to ensure gas utilities did not face financial problems.

Responding to a question, the IMF official said the discussions on whether or not Pakistan needed another IMF programme to repay the current one would take place only when the existing arrangement comes to a close. He identified some of the key challenges to Pakistan including declining exports, security situation and appreciation of exchange rate coupled with possible problems with international financial markets.

The IMF staff said that Pakistan had assured the fund that in the current round of National Finance Commission (NFC) negotiations, the authorities will seek an agreement with provinces to balance devolution of revenue and expenditure responsibilities in a way that allowed for macroeconomic stability.

“The federal government will encourage provinces to improve provincial revenue collection by modernising agriculture taxation and improving taxpayer compliance with a particular focus on identifying mis-declarations in this area,” the Fund said.

The authorities will also seek to establish a fiscal coordination committee comprising all provincial and federal finance secretaries to meet on a quarterly basis with the responsibility of coordinating fiscal policy at national level.

Mr Finger hoped that the ongoing political dialogue will continue with various stakeholders to develop consensus on restructuring and privatisations of PSEs, and that the country would achieve GDP growth rate of 4.5pc during this fiscal year.

He said the China-Pakistan Economic Corridor and Iran-Pakistan gas pipeline could be major growth lifting initiatives, with the latter project having potential to benefit both countries. He said changes in fiscal responsibility and debt limitation act are important reforms that will gradually reduce the debt. The talks on next IMF review would be held in early May and focus mostly on withdrawal of tax exemptions, he added.

Papers released by the IMF also showed Finance Minister Ishaq Dar committing to protect the level of revenue in the electricity sector by adjusting prices and undertake all necessary measures to ensure the full recovery of costs from consumers.

Mr Dar wrote to the IMF that the government was finalising independent technical loss diagnostic studies for all power distribution companies (Discos) to provide better estimates of loss rates for consideration by the regulator in 2016-17 tariff determination. “We are committed to continue phasing out untargeted subsidies, while continuing to protect the most vulnerable consumers,” the minister said.

The government reported that payables in the power sector remained stable in the second quarter (October-December) of this fiscal year at Rs326 billion.

In addition to current payables, such amounts also included a residual from payables clearance of June and July 2013, a disputed amount with the independent power producers (IPPs), non-recovery by Discos and penalties levied on past non-payment and transmission and distribution losses not recognised by the regulator, etc. The stock of past arrears remained at Rs335bn as of end-December 2015.

Mr Dar said the government would take steps to improve power sector collections and reduce operating costs, losses, and price distortions in the tariff structure. With this, the accumulation of payables will be reduced from Rs209bn in 2014-15 to less than Rs100bn this year and further halve new arrears accumulation by fiscal year 2018-19.

Published in Dawn, April 2nd, 2016

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