• Lender wants agri tax enforced, takes exception to plan to sell surplus power at cheaper rates • Fund calls for strategy to stop tax evasion, financial leakage; opposes provincial energy subsidises

ISLAMABAD: Amid final consultations on the budget, the International Monetary Fund (IMF) wants strict compliance with programme requirements, including the coverage of agriculture income tax in provincial budgets to ensure effective collection starting no later than September 2025.

The Fund also does not agree with a plan for incentivising enhanced power consumption desired by the federal government to absorb surplus capacity. Informed sources said the IMF wanted a strong commitment from the provinces for expenditure control, notwithstanding expansionary development plans presented by the provinces and approved by the National Economic Council (NEC). The four provinces have already exceeded their development allocations for next year by almost Rs850 billion than the IMF’s estimates.

The provinces, on the other hand, might not be able to provide a committed budget surplus this year, given the Centre’s revenue shortfall, and were maximising their next year allocations to ensure they did not lose their financial rights guaranteed by the National Finance Commission (NFC) before its next meeting.

The IMF also wants full implementation of the agriculture income tax and related services that the federal government and the provinces have not been able to settle, as the Centre believed corporate agriculture fell within its domain.

The sources said the authorities had tried their best getting a waiver for the sale of 7000mw of surplus power capacity at marginal cost — meaning no subsidy involved — but the Fund believed similar distortions in the economy, including taxation, incentives and allowances, had landed the country in a difficult state of affairs.

The government believed that surplus power could help boost economic activity if provided to new consumer sectors and industrial sectors even at breakeven rates, but the IMF believed it to be unfair to existing consumers paying a heavy price.

It was also considered unjustified to force old industries running at higher input costs to compete with new setups running on cheaper energy. The government was advised to continue cost-cutting efforts to stabilise the power sector and provide a level playing field to all. In this context, it was yet unclear if a section of the government trying to allocate 2000MW electricity to crypto farming would succeed in providing 3-4 cents per unit (Rs8-9 per unit) against Rs24-25 per unit base rate.

The IMF has also opposed provincial subsidies on electricity and gas as provided during the current year by Punjab, which intends to repeat it next year. In addition, it wants joint strategies to fight electricity and gas theft and smuggling to minimise financial leakage and tax loss. In this regard, the provinces would also have to right-size their departments in the next year to support a similar federal exercise during the current year.

The FBR tax target for next year would remain around Rs14.2tr or so as agreed during the first review of the extended fund programme a couple of months ago. Most of the other estimates shared at the time would also remain unchanged. There would be minor relaxation in tax rates for the salaried class but greater focus on recoveries from the retail sector. The cross-cutting theme of the next year’s budget would be digitisation and differential tax and transaction rates for cash and digital means.

Published in Dawn, June 5th, 2025