The main takeaway from the staff level agreement between Pakistan and the IMF is that the tax net is to be increased. That means that agricultural income, hitherto sacrosanct, is to be brought within the net. The package is a little larger than initially expected, at $7 billion, and is expected to last three years. The overarching promise the government has made is to bring the retail, export and agriculture sectors within the tax system. For the former two, it will mean the ending of the nonfiler status, against which the Finance Minister has been speaking frequently of late, However, the real kicker is the agreement to bring agricultural income within the tax net. For decades now, landowners have resisted this, not only because it gave them access to large tax-free revenues, but allowed them to declare industrial enterprises as making losses, and to show their profits as agricultural income. Because they had so much spare cash available, they have been able to fight elections, where they preserve this exemption. Indeed, an agricultural income tax has been placed entirely in the purview of the provinces, and pushing through a system where landowners have to tot up expenses and deduct them from income, paying tax on the balance, will be fiercely resisted. The present so-called agricultural income tax consists of a tax on land. This change has been agreed upon from January 1, which means that the government has got to tackle a new lobby, and can expect resistance from the backwoodsmen in all assemblies. However, this step has been made necessary because the provinces have to spend on health and education, as well as social protection, and regional infrastructure investment, as some of the funds presently spent by the federal government, become provincial liabilities.
It is not as if the power sector will see much relief, because it seems the IMF will continue to pay it close attention, with tariff hikes, reforms, and refraining from further increases in generation capacity. Hopefully, that will not extend to renewables like solar and hydel. It should be remembered that the IPPs and capacity payments issue arose out of the need to end loadshedding, which had arisen because not enough new generation capacity had been added to meet the increase in demand.
The government has exerted a lot of energy to get so far, and it should not forget that completing the programme is not the purpose; the PML(N) has done that before. The purpose must be to ensure that no further programme is needed.
