Pakistan and the International Monetary Fund (IMF) are working to overcome their differences over the quantum of new tax measures amid the government’s willingness to raise the fertilizer sales tax rate to 10% and apply a 17% import tax of crude oil to generate Rs 115 billion.
Negotiations between the IMF and Pakistan will continue into next week, although there are only five days to go before the budget presentation for the fiscal year 2021-22, said a source in the negotiations.
There is also a proposal to tax interest income under the normal tax regime, instead of charging a maximum rate of 15%, which is the lower limit.
The sources said that if the issues could not be resolved at the level of Finance Minister Shaukat Tarin and IMF Head of Mission Ernesto Rigo, Prime Minister Imran Khan could speak to IMF Managing Director Christalina Georgieva next week.
Another source said the main difference between the two sides is the tax measures Pakistan must take to reach the next fiscal year’s tax target of INR 5.829 trillion. Without additional tax measures, Pakistan will reach Rs5.3 trillion and the IMF wants the rest of the gap to be filled with additional revenue measures.
The sources said there was a proposal to increase the ICMS tax on fertilizers from 2% to 10% to generate Rs32 billion in revenue. Fertilizer companies have said that the government either zero gas supplies or raise the production tax to 17% to avoid refunds.
There is also a budget proposal to impose a 17% tax on crude oil imports. The measure will generate revenues of INR 85 billion in the next fiscal year. There is already a tax at the local level, but the FBR suspects that an oil refinery evades taxes on its oil product production.
The sources said the government was also in discussions with the IMF to allow it to treat revenue under oil revenue and central bank profits as part of tax revenues, without making them part of the divisible pool. Shifting the SBP’s oil revenue and profit from “non-tax” to “tax” revenue would increase the tax-to-GDP ratio that has so far remained low.