A special IMF delegation has been holding talks with the Federal Board of Revenue and seems satisfied at keeping its collection target at Rs 12.97 trillion, which means that it does not see the need for a mini-budget. One of the items on the table was an increase in the sales tax on petroleum products, which would have had a negative knock-on effect on inflation. The same applies to another measure, which was an increase in the petroleum levy. The IMF team seems to have bought the argument that existing collections have resulted in a 1.5 percentage point increase in the tax-to-GDP ratio from 8.8 percent to 10.3 percent, and thus there is no need to panic.
One cause for concern for both the government and the IMF is the success of the Tajir Dost Scheme under which the trading community was supposed to be brought within the tax net. The visitors are supposed to have suggested some tweaks to the scheme, so as to make it more effective. The scheme’s purpose is to get traders, both wholesale and retail, to pay sales tax, which would ensure registration for income tax. Traders have shown a firm prejudice against getting registered, suborning tax officials for this purpose, and making a lobby within all political parties against payment. This lobby is presently in office, and the Prime Minister himself is a former President of the Lahore Chamber of Commerce and Industry, one purpose of which was to avoid registration for tax purposes. Not collecting taxes from this category makes the tax administration rely on salaried persons. Another problem with salaried persons is that income tax is it. Traders, however, also have to pay sales tax, which they also try to avoid, so as to prevent their turnover becoming known.
One of the advantages of the visit is that it should prove helpful in the first review of the $7.7 billion Extended Fund Facility. It has been stressed that the visit did not constitute a review, but it might be remembered that the successful review of the Standby Arrangement reached in 2023, proved instrumental in reaching the Staff-Level Agreement that led up to the current EFF Now that the IMF team seems satisfied that the IMF’s money is not in danger, the visit should prove blessing in disguise come the review. After all, it is not just a matter of shring information, but learning how the other person thinks.
