Centre, provinces sign landmark fiscal pact under IMF condition

ISLAMABAD: In a bid to comply with the IMF conditions under the $7 billion Extended Fund Facility (EFF), the federal government and the provinces have struck a National Fiscal Pact for extending cooperation on a 19-point agenda, including discontinuation of support and procurement prices of commodities by the provinces.

Top official sources confirmed to The News on Friday that the Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan governments had signed a Memorandum of Understanding with the federal government on sharing the fiscal responsibilities on June 27, July 30, July 12 and July 26 this year respectively.

The federal and provincial governments further agreed that some spending responsibilities from the Government of Pakistan would be devolved to the provincial governments in line with the spending allocations established in the 18th Amendment, including additional contributions for higher education, health, social protection, and regional public infrastructure investment. At the same time, the provinces will take steps to increase their own tax-collection efforts in sales tax on services, property tax, and agricultural income tax.

On revenue measures, the provincial governments shall: —

i. Amend the Agricultural Income Tax (AIT) regimes to fully align them, through necessary legislative changes, with the Federal Personal Income (small farmers) and Corporate Income (Commercial Agriculture) tax regimes by October 2024 and begin taxation of agricultural income under this new regime from January 1, 2025, with collection for second half of FY 2024-25 agricultural income in July 2025.

ii. Transition the services GST from a positive list to a negative list approach to combat tax evasion to take effect from the start of FY 2025-26.

iii. Aim to collectively raise revenues from corporate tax in agriculture and GST on services combined with provincial tax effort in expanding additional areas of revenue collection.

iv. Develop, implement and collect revenue under a common approach to property taxation.

v. Implement the necessary administrative reforms to narrow the tax compliance gap, including for the GST.

vi. National Tax Council terms of reference will be expanded to include the design of the relevant tax measures including property tax and the necessary legal and administrative changes to implement them.

Spending measures

vii. The provinces shall provide additional contributions for Higher Education to the federal government supported initiatives of the Higher Education Commission (HEC) and the federal and provincial governments shall gradually rebuild spending on health and education programs as a share of GDP.

viii. The federal government in consultation with the provincial governments will examine social protection programs rolled out/planned by the provincial governments and BISP respectively, to identify overlapping programs and fiscal allocations, and take fiscally prudent measures accordingly, in ways which strengthen and improve generosity and coverage of social protection.

ix. The provinces will cover the entire PSDP spending, which benefits solely one province and any spending by the federal government in areas allocated to provinces in the 18th Amendment as per the decision of the National Economic Council (NEC), with certain exceptions to be determined by NEC on the basis of well-defined criteria.

x. The provinces shall discontinue announcing support prices (for raw commodities) and also discontinue procurement operations.

xi. The federal government shall reduce its footprint in line with the 18th Amendment.

xii. If needed, matters requiring federal and provincial consensus and coordination may be referred to the forum of Council of Common Interests (CCI) or NEC.

Governance measures

xiii. The federal and provincial governments shall implement the Electronic Pakistan Acquisition and Disposal System (e-PADS)

xiv. The federal and provincial governments shall adopt green budget tagging by end June 2025.

xv. The provincial anti-corruption establishments will coordinate with the newly established AML/CFT Authority and other relevant agencies such as Financial Monitoring Unit (FMU), Federal Board of Revenue (FBR), National Accountability Bureau (NAB), etc., for implementation of national AML/CFT strategy.

xvi. The federal and provincial governments shall issue regulations to grant banks’ access to high-level provincial public officials (BPS17-22) wealth statements.

xvii. The provincial governments shall facilitate the expansion of Pakistan Single Window platform to provincial departments by end-FY26.

xviii. The federal and provincial governments shall facilitate moving swiftly towards the complete digitalization of government payments, and promotion of digitalizing public records which would enhance access to credit by currently underserved segments of the population.