ALl taxation measures have to receive IMF approval, which is especially the case when an IMF team is visiting for one of the all-important biannual reviews which determine whether the next tranche of the programme is to be released or not. Now it begins to be understood why the recently visiting team left without a staff-level agreement, leaving the government forced to make two major concessions and rolling back two measures it had intended to announce with much fanfare, and which it had hoped would dominate the debate, especially in the post-Eid period when the opposition is mulling a street movement against it. Not only has the IMF vetoed the cut in the electricity tariff that the PM had planned to announce on the Pakistan Day just past, but it has also shot down the planned reduction in the withholding tax on property transactions. The pity is that both measures were not just crowd pleasers, but important components of the government’s growth strategy.
The work on getting the IPPs to revise their power purchase agreements is not entirely wasted, as reductions are still going through the system, like the Rs 0.50 relief that was granted by NEPRA at its latest meeting. The IMF had already acted to prevent the government removing any of the taxes it included in the electricity bill, such as withholding taxes. thus turning the distribution companies into a sort of supernumerary tax collector. Now it seems to thwart any measure that would lead to relief for the ordinary consumer, as well as for export manufacturers. The general anti-relief tendency of the IMF can be seen in its refusal to allow the CBR to reduce the withholding tax on real estate transactions. This is a sector-specific action, for it prevents rel estate from taking place. It should be noted tha rel estate activity wsill lead to construction, and thus to the greater demand for building materials.
The government must realize that the IMF has no concern with the political advantages of any measure, nor with anything other than the borrower’s ability to repay. It should expect any of its measures designed to benefit any sector, or even everyone, to be shot down by the IMF. This is another reason why the government should fulfill its promise to make this the last IMF programme.
