LAHORE: The International Monetary Fund agreement has provided much needed relief to the state of Pakistan, but as in most IMF deals, it will be a nightmare for the people of the country as the government would squeeze captive taxpayers instead of improving governance.
Credit for reaching this agreement goes to Prime Minister Shahbaz Sharif, who admitted during a press conference in Lahore that it will bring no immediate relief for the people of Pakistan.
The foreign inflows in form debt will boost its foreign exchange reserves and give temporary relief from the threat of sovereign default.
The increase in proposed revenues would mostly come from the existing taxpayers.
The state apparatus still lacks the capability and capacity to confront tax evaders, short fillers or outright smugglers.
Official threats of bringing tax evaders into the tax net is for public consumption.
Increasing the tax base through current revenue staff is not possible because they are partners in crime with the tax evaders. Eliminating them is not in their interest.
The most viable option of improving compliance through information technology has failed in Pakistan.
Software for this purpose is developed with the input from the corrupt revenue officials, who cleverly ensure that application of the software is so cumbersome that the taxpayers land in their hands.
The IMF is now fully aware of the drawbacks that Pakistani authorities face in Pakistan and therefore suggest avenues where tax evasion is difficult. The levy on petroleum products brings targeted revenues.
It hurts the common man more. Pakistan was already collecting Rs50/litre petroleum levy on petrol under the dictate of the IMF.
Now it has been ordered to increase the levy to Rs60/litre. The increase in petroleum levy that first applied on diesel will bring revenue without any government effort.
The menace of circular debt in the power sector is more due to power theft of about 18 percent and inefficient operations plus corruption in the department starting from abetting power thieves to avoid collecting bills from numerous influential power consumers.
Then there is corruption in the fuel purchased for public sector power generators and in the maintenance of power equipment. Increase in power tariff by Rs3/unit as stated by Ishaq Dar will be borne by the honest power consumers, while power thieves and corrupt staff would be the beneficiaries.
It must give a nightmare to the power sector authorities that power rates have increased fromRs9/unit in 2018 to minimum Rs27/unit, while the circular debt kept increasing.
In fact, the increase in power tariff is a windfall for the power thieves and their official collaborators, who share the booty of every power tariff.
If we remove corrupt and incompetent power officials, we might start reducing power tariff instead of increasing it.
The cruellest tax that this government was forced to accept was the increase in tax rates for the salaried class. Their tax is deducted at source by the employers.
Up till now, those earning Rs200,000 per month were paying 5 percent income tax on their income that amounted to Rs60,000 per year. Now they are required to pay Rs90,000 per year. This is unjust.
Finance Minister Ishaq Dar boasted that the IMF was asking to collect additional Rs100 billion from salaried class as income tax, but the Pakistani government managed to restrict it to Rs15 billion only.
The government could have collected 30 times more taxes had it concentrated its efforts on eliminating under-invoicing and under-filing of tax returns.
