IMF amenable to idea of cut in power tariff

ISLAMABAD: The government plans to utilize Rs1.3 trillion, saved due to a decline in debt servicing from Rs9.7 trillion to Rs8.4 trillion, to provide relief to power sector consumers and clear circular debt stocks. This significant reduction in debt servicing is a result of the decreased policy rate from 22pc to 12pc.

Meanwhile, the IMF has rejected the FBR’s proposals to slash down tax rates on cigarettes and beverages and asked the government to give in writing about revenue measures to bridge any revenue shortfall occurring in the current fiscal year. The IMF has also ruled out the possibility of reducing the GST rate on electricity bills. The Ministry of Finance was asked to share reconciled figures on the expenditure front in case of revenue shortfall on the tax and non-tax revenue targets. On the demand of relief measures for the construction/real estate sector, the IMF has not yet given its final verdict. “At one point of time, the IMF also floated the idea for increasing the GST rate for jacking up dwindling revenue collection in the remaining months of the current fiscal year but nothing in this regard was finalised yet,” top official sources confirmed while talking to The News here on Tuesday.

On an immediate basis, the tax rates on tobacco and beverages could not be reduced but it might be considered in the next budget, according to the verdict of the IMF’s visiting mission. In the wake of rejection of the FBR proposal, the tax-paying tobacco industry projected that the tax revenue would come down to Rs243 billion.

At the outset of the parleys, the IMF held talks with the Ministry of Finance and FBR high-ups to deliberate upon the fiscal framework for the current fiscal year. There would be revenue loss of Rs211 billion till fiscal year 2026-27, mainly because the tobacco consumption shifted towards the tax evaded sector.

On the revenue side, Pakistani authorities claimed that the revenue shortfall of Rs605 billion would be bridged through recovery of the stuck up amount of Rs350 billion in superior courts and the remaining Rs250 billion through effective enforcement by conducting audits through the Risk Management System and bringing retailers into the tax net. IMF also thinks the FBR wouldn’t be able to bridge the Rs605 billion gap that occurred in the first eight months of the current fiscal year. The FBR needs to collect Rs4,890 billion in the four months (March-June) period for achieving a revenue collection target of Rs1,2970 billion.

However, the IMF did not agree to it and asked the FBR to give in writing about the taxation measures in case a shortfall occurred in the remaining months of the current fiscal year. The IMF also asked for taking measures with effect from April 2025 otherwise there will be no time to create any substantial difference.

The FBR managed to collect Rs3,443 billion during March to June in the last fiscal year 2023-24. It seems simply impossible to achieve the desired growth in revenue in the last four months of the current fiscal year. Independent tax experts argue that the FBR might have to face a revenue shortfall of Rs1,000 to Rs1,200 billion for the current fiscal year.

On the other hand, the Ministry of Finance was asked to come up with revised estimates on the expenditure side and the government was left with no other option but to slash down the development spending under the Public Sector Development Program to achieve primary balance surplus under the agreement with the IMF.

The PSDP might hover around Rs600 billion to Rs650 billion against the allocated amount of Rs1,150 billion for the current fiscal year.