Tax Talks

The International Monetary Fund (IMF) has urged authorities in Islamabad to take steps “to decrease state intervention in the economy and enhance competition” while emphasising the importance of structural energy reforms terming it “critical to restore the sector’s viability”.

“We had constructive discussions with the authorities on their economic policy and reform efforts to reduce vulnerabilities and lay the basis for stronger and sustainable growth,” said Nathan Porter, IMF mission chief, in a statement released by the Washington-based lender on Friday.

“We agreed with the need to continue prudent fiscal and monetary policies, revenue mobilisation from untapped tax bases while transferring greater social and development responsibilities to provinces.

“In addition, structural energy reforms and constructive efforts are critical to restore the sector’s viability, and Pakistan should take steps to decrease state intervention in the economy and enhance competition, which will help foster the development of a dynamic private sector,” Porter was quoted as saying.

The remarks come after the IMF mission led by Nathan Porter concluded a staff visit to Pakistan from November 12 to 15, 2024.

The IMF delegation was in Pakistan to discuss recent developments and the Extended Fund Facility (EFF) programme performance to date.

During the visit, the IMF team met with senior officials from the federal and provincial governments, the State Bank of Pakistan (SBP), as well as representatives from the private sector.

The IMF mission chief noted that strong programme implementation can “create a more prosperous and more inclusive Pakistan, improving living standards for all Pakistanis”.

“We are encouraged by the authorities’ reaffirmed commitment to the economic reforms supported by the 2024 Extended Fund Facility (EFF),” he said, while informing that the next mission associated with the first EFF review is expected in the first quarter of 2025.

On Friday, the visiting IMF team held final meetings with federal and provincial governments’ representatives and asked for meeting the benchmarks and conditionalities for the EFF.

According to a Business Recorder report, Finance Minister Mohammad Aurangzeb also participated in the final round of talks.

The report, while citing its sources, said the IMF team stressed the need to implement tax targets and the National Fiscal Pact.

Sources revealed to Business Recorder that the lender stressed the importance of accelerating tax revenue collection to meet the tax target of Rs12,970 billion for the ongoing financial year. The IMF team also urged for the collection of taxes on agricultural income starting January 2025.

Moreover, the IMF has recommended Pakistan strengthen its capacity at the Finance Division to lead and coordinate macro-fiscal forecasts to support budget preparation, increasing forecast cycles and synchronising them with the budget.

The Fund has also asked Pakistan to initiate legal changes, required to limit the discretionary powers granted to the federal government over the use of supplementary grants, while maintaining some flexibility in budget execution.

Notably, IMF staff visits are standard practice for countries with semi-annual programme reviews and aim to engage with the authorities and other stakeholders on the country’s economic developments and policies and the status of planned reforms.