$5.3b bailout package: Govt gives in to key IMF demand

By Shahbaz Rana

Published: July 3, 2013

Levying more taxes either by withdrawing the SROs or through new legislation was one of the most contentious pre-conditions out of the five the IMF has set for Pakistan to obtain a fresh monetary package. ILLUSTRATION: JAMAL KHURSHID

ISLAMABAD: In a bid to avoid potential financial default, Pakistan has conceded to a major demand of the International Monetary Fund (IMF) by agreeing to withdraw tax exemptions to the wealthy.

Sources revealed on Tuesday that the concession has paved the way for a new bailout programme worth around $5.3 billion. A formal announcement is expected within the next 24 hours, sources added.

The review and withdrawal of tax exemptions enjoyed by the country’s wealthy and influential lobbies will be a ‘structural benchmark’ or condition of the new IMF programme, confirmed a senior official of the finance ministry to The Express Tribune.

The tax exemptions have been granted through Statutory Regulatory Orders (SROs), and no new legislation will be requir­ed to take them back, sources said. However, the amount the government will raise by withdrawing the SROs was not immediately clear.

In the budget for the fiscal year 2013-14, the government has already levied Rs207 billion in new taxes aimed at achieving a tax target of Rs2.475 trillion. But this was declared insufficient by the IMF.

The move, though much-needed, is contrary to Finance Minister Ishaq Dar’s assertion that the government will not levy more taxes, “programme or no programme”. However, as a face-saving measure, the Pakistan Muslim League-Nawaz government will sell it as part of ‘homegrown reforms’ by insisting that it will not be a revenue measure, sources said.

The Federal Board of Revenue (FBR) will also soon start working on the SROs that will be withdrawn.

Levying more taxes either by withdrawing the SROs or through new legislation was one of the most contentious pre-conditions out of the five the IMF has set for Pakistan to obtain a fresh monetary package.

“We have converged on all issues and the deal will be closed very soon,” said Rana Asad Amin, a spokesman for the finance ministry.

Pakistan is in dire need of an IMF package to repay the loan it obtained in 2008. The reserves held by the State Bank of Pakistan are not sufficient to meet international obligations.

According to the Economic Survey of Pakistan 2012-13, in the last fiscal year alone, the country provided Rs239.5 billion worth of tax breaks, mainly to influential people.

The FBR gave Rs82.3 billion worth of income tax exemptions. The sales tax exemptions stood at Rs37.5 billion which were mainly given to sugar and tractor industries. The customs duties exemptions grew to Rs119.7 billion.

But not all the exemptions can be withdrawn as many are given under international treaties, particularly on account of customs duties that are waived off or reduced under preferential and free trade agreements. The independent power producers are enjoying income tax exemption and the country waived off Rs50 billion in the last one year alone, according to the government report.

Published in The Express Tribune, July 3^rd, 2013.