A significant disagreement has emerged between Pakistani negotiators and the International Monetary Fund (IMF) regarding financial figures. However, the government has not shown any inclination towards imposing additional taxes through an interim budget during the remaining period of the current fiscal year. While revising budget deficits is possible, the IMF is urging Pakistani authorities to ensure the certainty of achieving a primary surplus. Criticizing Punjab’s financial situation, the IMF has stated that the province has failed to generate the desired revenue and curb its unchecked expenditures. Discussions have revealed that the IMF wishes to empower the Federal Board of Revenue (FBR) to collect taxes in Punjab, and once collected, distribute these revenues by deducting collection fees, with a particular focus on the province with the highest population.
The IMF aims to improve fiscal federalism and has recommended consensus be reached on an interim basis for consultation on cross-cutting fiscal matters for the implementation of NFC Awards. Currently, the IMF seeks better coordination with provincial governments, including improved communication to ensure the achievement and full implementation of budgetary goals for fiscal year 2024 through enhanced dialogue, including better fiscal arrangements. The Punjab government has pledged to cut Rs. 115 billion in its expenses through a memorandum of understanding on this matter. This measure is intended to achieve a surplus for the remaining period of fiscal year 2024.
Provincial governments have expressed readiness to secure loans for items accumulated over an extended period and have demonstrated preparedness for the implementation and payment of these loans through a system of staggered disbursements and payments. This loan has been generated by the Provincial Food Departments working outside the government’s fiscal boundaries. However, the IMF’s demand to introduce a simple tax scheme for retailers has led Finance Minister Shaukat Tareen to participate in another meeting at the last minute. He could not attend the IMF meeting on Friday regarding financial matters.
Therefore, the government will need to inform the IMF about its intentions regarding the scheme to tax retailers. The government has already obtained the authority to impose taxes on retailers during the previous budget session. This scheme does not require any legislative approval from parliament, but the government led by the PML-N appears to be hesitant to grant approval to tax shopkeepers to protect its political base. The IMF has provided estimates ranging from March to June, which it claims the Ministry of Finance has shared. However, the FBR has clarified that it aims to achieve an annual tax collection target of Rs. 9.415 trillion, and there is no need for any interim budget regarding this matter.
After extensive discussions, the IMF has instructed the FBR to share its monthly targets in a timely manner, and if necessary, take additional tax measures. The IMF has made it mandatory for the FBR to share its monthly collections by May 3, 2024. The IMF has also announced its intention to provide monthly data to the IMF based on indicators of agreed performance. There is a significant difference between the estimates of the IMF and the Ministry of Finance regarding non-tax revenues. The IMF has provided references to increasing expenditures, including loan repayments and other expenses, which may lead to revisiting the decided budget deficit, which could reach 7.9 percent of GDP.
