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IMF’s USD 1 bn tranches to Pakistan forces Islamabad to slap Rs 160 bn taxes on salaried class

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The now-resumed International Monetary Fund (IMF) programme that revived Pakistan‘s stalled programme and cleared USD 1 billion tranches has forced the federal government to impose Rs 160 billion tax on the country’s salaried class by reducing the number of slabs.

Pakistan has committed to draft Personal Income Tax (PIT) legislation till the end of February 2022 for slapping approximately Rs160 billion tax on the salaried class by jacking up tax rates and reducing the number of slabs, The News International reported.

Pakistan committed IMF to draft PIT legislation till February end and it will be announced in the budget for 2022-23 and will become effective from July 1, 2022.

Moreover, the government has also committed to the IMF for the issuance of regulations by the Public Procurement Regulatory Authority (PPPA) to require collection for publication of beneficial ownership information from companies that are awarded public procurement contracts for Rs 50 million and above till the end-March 2022, reported The News International.

Meanwhile, the Fund stated that GST base harmonisation will be critical to improving competitiveness and the business environment. Under the current system, the sales tax base is fragmented, with services subject to provincial taxation and goods under federal government taxation.

The fragmentation of the tax base has severely compromised tax policy design and administration, generated disagreements over tax base definition and crediting, caused cascading and double taxation for businesses, and significantly increased compliance costs.

Indeed, the system is cumbersome and harms competitiveness by increasing the cost of doing business, reported The News International.

The IMF staff assessed that risks continue to be tilted to the downside, both on the domestic and external front.

The Washington-based lender’s outlook for growth, trade, and remittances remains clouded amid the ongoing COVID-19 pandemic, especially at the global level, while inflation may rise further than expected as commodity prices feed through to domestic prices.

In addition, political tensions over reforms could weaken policy implementation, and undermine Pakistan’s adjustment path, debt sustainability, and growth potential.

However, reform fatigue and the political cycle could quickly narrow the window to undertake critical reforms, reported The News International.

Tapering, geopolitical tensions, and waning reform efforts could affect external financing conditions.

The IMF’s executive board — that met in Washington — also waived off few conditions to pave the way for the release of the fourth loan tranche under the sixth review of the USD 6 billion Extended Fund Facility.

The government has missed the primary budget deficit reduction target. The programme was suspended since June last year.

After dragging feet for eight months, Prime Minister Imran Khan signed off all the conditions that it tried to resist first in June and then in October last year.

The Pakistan government agreed to take Rs 800 billion measures through a combination of cut in expenditures and imposition of about Rs 500 billion in taxes, including Rs 20 per litre fuel tax, to revive the stalled USD 6 billion IMF programme.

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