IMF asks Pakistan to generate Rs360bn revenue in one go

ISLAMABAD: The International Monetary Fund (IMF) has asked the Federal Board of Revenue (FBR) to take measures to net Rs360 billion, or 1.5 percent of gross domestic product (GDP), and come up with a plan to this effect in order to bridge the yawning budget deficit.

A senior official of the Finance Division was quite perturbed with unrealistic demand of the IMF’s visiting mission during a meeting with Pakistani officials held on Wednesday.

“Pakistan’s expenditures side is quite rigid keeping in view committed spending in shape of debt servicing on domestic and foreign loans and then the defence expenditures, which the government might not be able to slash down keeping in view the overall security environment,” the IMF official was quoted as saying, and added that the only viable solution was revenue mobilisation in a major way in order to cut down the overall size of fiscal deficit on medium term basis.

The Chairman FBR Ali Arshad Hakeem replied to the IMF that the envisaged revenue collection target of Rs2,381 billion could not be achieved because of slippages in first six months and in case of approval of tax amnesty scheme from the parliament, the tax-to-GDP ratio could be jumped up around 0.5 to 0.7 percent of GDP by applying all-out efforts.

“The FBR authorities were amazed over the demand of the IMF for increasing tax to GDP ratio by 1.5 percent of GDP in one go when the imports decreased by 9 percent and the economy was in the mode of slowing down,” said sources.

The possibility of slapping agriculture income tax and effective enforcement of general sales tax too came under discussion during technical level talks in which the FBR stated that in view of election year it seemed impossible for taking any tough political decision.

But the IMF officials insisted that the FBR would have to come up with correction of policy prescription keeping in view experience of other countries instead of focusing only on administration side.

On the medium-term basis, Pakistan would have to reduce its budget deficit from an average of over 6.5 percent of GDP to around three percent of GDP in order to achieve sustainability, otherwise the economy would continue to face severe challenges in years ahead.

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