IMF asks govt to narrow budget deficit, broaden tax base

Source: The Nation

ISLAMABAD - Talks between Pakistan and the International Monetary Fund (IMF) continued in Islamabad as the visiting delegation has asked the government to reduce the expenditures in order to restrict the budget deficit and broaden the tax base of the country.

Pakistan and IMF are holding talks for a new loan programme for the fresh extended fund facility. The talks are expected to continue for the next few days. Pakistan has recently completed the IMF's standby-programme worth $3 billion, and the country had requested for a fresh loan programme under the Extended Fund Facility (EFF). The volume of the loan programme would be decided in the ongoing talks. This would be Pakistan's 24th IMF programme.

The visiting delegation has so far held talks with the officials of the Ministry of Finance, Federal Board of Revenue (FBR) and others. The IMF has asked the government to broaden the tax base and tax collection of the country. It has asked to bring the non-taxpayers into tax net.

The FBR has briefed about the ongoing Tajir Dost Scheme in which the government is trying to bring retailers into the tax net.

The government has informed the IMF that it is likely to raise advance tax on the purchase of immovable properties by non-filers in the upcoming budget for the next fiscal year. The IMF asked the FBR to increase advance tax on non-filers for the purchase of property. The FBR has proposed to raise withholding tax on cash withdrawal from the banks by non-filers from 0.6 percent to 0.9 percent. Presently, over Rs50,000 cash withdrawal by non-filers, in a single day, through credit cards/ATMs is also be subjected to 0.6 percent withholding tax.

The IMF has asked the government to reduce the expenditures to control the budget deficit. The budget deficit had already widened to Rs3.9 trillion (3.7pc of GDP) in nine months (July to March) of the current fiscal year, which is almost 27 percent higher than last year's Rs3.078 trillion (3.6pc of GDP). Main reason behind higher deficit was massive hike in interest payment, which was recorded at Rs5.52 trillion in nine months of the current fiscal year as against Rs3.58 trillion in the same period last year.

The Fund has noted that heavy interest payments on loans as a burden on the economy and demanded a reduction in government spending. The government has informed that the target for paying interest on loans for the current financial year was Rs7,303 billion. According to the IMF estimates, the interest bill on loans will reach Rs 9,787 billion in the next financial year.

The talks are expected to continue next few days to finalise the new programme and annual budget for the next fiscal year.

Last week, the IMF had made public its projections on macroeconomic targets for the next fiscal year. According to the IMF's estimates, Pakistan's gross external financing needs are $21.04 billion for the next year. The Fund has projected the country's current account deficit at 1.2 percent or $4.55 billion for the upcoming fiscal year. Pakistan's total revenues are estimated to be Rs15.5 trillion for the next financial year, which is almost Rs2 trillion more than the current year's Rs13.36 trillion. Of this, federal revenue should go up to Rs13.3 trillion next year. The FBR's tax collection would be Rs11.11 trillion, showing an increase of Rs1.7 trillion over the current fiscal year's Rs9.415 trillion.