THE FBR’s tax target of Rs6tr for the next year under the IMF-mandated fiscal adjustment policies will increase the income tax burden on salaried individuals, expand the scope of consumption tax and see the withdrawal of certain tax exemptions, besides raising electricity and petroleum products’ prices. The new revenue mobilisation measures will unleash another round of inflation while further squeezing purchasing power. In order to meet its other payment obligations such as debt servicing and recurrent expenditure like the defence budget, the government would have to reduce development spending, which would hamper job creation among other things. The government’s commitments to the IMF for resumption of the loan suggests that next year’s projected tax collection is 27pc or Rs1.3tr higher than the current fiscal’s revised target. This means people will pay the FBR an additional Rs570bn in 2021-22 owing to changes in income tax and GST. Likewise, they will pay almost Rs160bn more as petroleum levy in addition to picking up the burden of withdrawal of exemptions to businesses and increased taxes on imports.
The PTI government has assured the IMF of its commitment to “broadening the tax base and gradually increasing the tax-to-GDP ratio by more than 3pc of GDP through FY2023, with a cumulative fiscal policy adjustment of 3.3pc of GDP”. The details of the agreement were revealed days after the World Bank’s Pakistan Development Update drew a bleak picture of the medium-term economic growth outlook and brought the focus back on surging poverty and rising unemployment in the midst of Covid-19. The day the report was released, the prime minister too had underlined the implications of the IMF-mandated adjustments on economic growth, businesses, poverty and jobs, saying that he intended to approach the Fund for softening its loan conditions. A few days earlier he had sacked his finance minister for agreeing to stringent IMF conditions.
A report quoted the IMF mission chief in Pakistan as saying the “programme requires significant revenue efforts from the beginning as there is little room on the expenditure side”. That may be so but it does not justify the new burden on ordinary people who have lost jobs or seen their real incomes shrink significantly in these times. Unfortunately, honest taxpayers and consumers are being punished for the government’s failure to revamp the corrupt tax machinery and collapsing power sector. Most tax revenue measures will affect the poor to middle-income groups — directly or indirectly — while the wealthy will continue to get massive subsidies and tax relief in the name of providing jobs and homes to them. For many, the IMF has become a part of the problem by emphasising higher revenue collection rather than stressing the need for broadening the net for boosting tax collection and structural reforms. By letting the government get away with its failure on reforms, the Fund is only helping it widen income inequality in the country.
Published in Dawn, April 10th, 2021