Aurangzeb hopes for new IMF deal in July

We have to take tax-to-GDP ratio to 13pc in 3 years: Finance minister

ISLAMABAD   -   Finance minister Muhammad Aurangzeb on Thursday expressed the hope that a staff-level agreement with the International Monetary Fund (IMF) for a new loan programme would be reached in July as the talks are moving in the right direction.

“I don’t want to say anything in finality other than the fact that it’s moving positively,” Muhammad Aurangzeb said while addressing the post-budget press conference along with Minister of State for Finance Ali Pervaiz Malik and economic team. He further said that virtual negotiations with the IMF are underway but declined to comment further on the subject until an agreement with the Fund is finalized.

He said that the government has framed the budget aimed to broaden the tax base of the country. The government has aimed to enhance the tax-to-GDP ratio to 13 percent in the next three years from existing only 9 percent, which is simply not sustainable. “We have to [enhance it] every year so that in the next three years, we can take it to 13pc,” he asserted, asking if any other country in the world was sustaining itself with a tax-to-GDP ratio of less than 10pc, like Pakistan was.

The Finance Minister said that the annual budget 2024-25 revolves around five principles, including widening the tax base, digitizing the economy, implementing a progressive income tax regime, eliminating non-filers, and protecting low-income groups. He informed that the government would not increase the petroleum development levy immediately, as it would be increased in different phases by keeping international prices into consideration.

On a question about income tax slabs, he informed that taxes for the exempted class and those in the top slab category have been maintained. “If you compare it with the non-salaries class, which includes the professional community, we have increased it to 45%,” he said, adding that there are some changes in tax slabs and there is no doubt about it. “If you look on an individual level, the burden is not that heavy.”

He further stated that the concept of non-filers is only in Pakistan and no other country in the world; therefore, the tax rate has been increased for non-filers. “Higher taxes would be imposed on those with higher incomes, adding that no one should object to it”, he added.

He further said the government would re-launch the Point of Sale price scheme to “try and document cash transactions as much as possible”. “Cash transactions are linked with digitization and undocumented economy. Rs9tr in cash is in circulation,” he emphasized

The Finance Minister said that the government is digitalizing the undocumented economy on an end-to-end basis, which would reduce human intervention. Sharing the details of taxing retailers, he informed that the government has mobilized the drive in May as 31,000 retailers have been registered so far. The campaign will continue as the collection of tax will begin from July. He insisted that the tax on retailers and wholesalers should have been imposed in 2022. “We protected [them] as much as we could... We have no choice but to bring this sector into the tax net.”

Aurangzeb said digitization of the economy is a priority for the government, as it will help reduce corruption and increase transparency.

Talking about the the Public Sector Development Programme (PSDP), he said the government has allocated major funds for the projects in which are near for completion.bHe further said that the track and trace system had been rolled out and would be expanded from cigarettes to cement and other sectors. “Sales tax has a big leakage as well. We need to plug all of these through digitisation,” he added.

To a question about bringing inflation down to 12 percent was realistic, Aurangzeb said, “We should have shut down ministries and sectors that were not contributing. This is how we’ll cut expenditures. There is still work to be done, the prime minister will make decisions around ministries and devolved subjects.” “The greater the number of things we exclude the government from, the more fiscal space we will get,” the finance minister asserted.

Minister of State for Finance Ali Pervaiz Malik said significant allocations have been made in this respect under the Benazir Income Support Programme. Similarly, the largest chunk of subsidies will go for the power sector to facilitate electricity consumers, including the protected customers using up to 200 units.

Regarding inflation, the minister of state said: “We understand the impact of inflation on the common man, but we need to remember that we have made steps in the right direction.” Citing the example of Argentina as being a huge debtor to the IMF, Malik said: “If you hand things out, your deficit rises, in which case you print more money, or take a loan and put the burden on future generations — we have done both of these things.”

“Give us time to enforce and impose direct taxation,” he said, stating that there were now punitive measures in place. Noting that the biggest allocation was for the power sector, Malik admitted that “there will be governance issues but it will protect the most vulnerable”.

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