Finance Minister Muhammad Aurangzeb expressed strong optimism on Sunday regarding Pakistan’s prospects of securing a new International Monetary Fund (IMF) bailout, following President Asif Ali Zardari’s approval of a tax-heavy budget for the upcoming fiscal year beginning July 1.
Speaking at a press conference in Islamabad, Aurangzeb emphasized the critical importance of the IMF programme for ensuring macroeconomic stability in Pakistan. “The IMF programme is our assurance in terms of macro stability. We are taking it forward; it is inevitable. I’m very optimistic that we’ll be able to take it through the finish line for an Extended Fund Programme which is going to be larger and longer in nature,” he stated.
The federal government, grappling with severe financial constraints, has introduced an Rs18.9 trillion budget replete with measures aimed at increasing tax revenue. These measures are essential for securing the much-needed IMF bailout after the country nearly defaulted last year.
Key components of the budget include heightened taxes on the salaried class, the inclusion of exporters in the regular tax regime, an increase in the petroleum development levy (PDL) to Rs70 per liter, and new taxes on the real estate sector. These measures are designed to boost tax collection and address the fiscal deficit. However, experts caution that while these steps may facilitate the unlocking of the IMF deal, they are likely to exacerbate inflation, potentially provoking public discontent.
Addressing concerns about the increased tax burden on an already struggling population, Aurangzeb expressed empathy and a commitment to easing the financial strain in the future. “I completely understand the stress that people from different sectors feel about additional taxes; I completely empathise and sympathise, but we need to work for it,” he said.
Aurangzeb underscored the government’s intent to mitigate the burden on the public and businesses by improving the management system and curbing financial leakages.
One significant aspect of the budget is the increase in the petroleum development levy (PDL) by Rs10 per liter, raising it from Rs60 to Rs70. This move has raised public concerns due to the already high petrol prices. However, Aurangzeb clarified that the increased levy would not be imposed immediately. “There are talks about the PDL. I want to be very clear: the Rs70 limit that we’ve set, we’re not going to impose it [right now],” he assured. “This is a ceiling. In my first budget speech, I had set it at Rs80, which was later revised to Rs70 and it will not be imposed; it’ll be kept as a headroom.”
In addition to the Rs70 levy on petrol, the same levy will be applied to diesel, while Rs50 per liter will be imposed on light diesel oil and kerosene oil. High-octane fuel will also be subject to the Rs70 per liter levy.
To boost tax collection in a country where the informal sector dominates employment, the government has implemented stringent measures. Only 5.2 million people filed income tax returns in 2022, despite a population exceeding 240 million. To address this, the government has blocked mobile phone SIM cards for non-filers and will restrict them from traveling abroad.
The finance minister defended the budget, emphasizing that new sectors would be brought into the tax net. “There should be no confusion that we aren’t roping in new sectors. The same goes for the real estate sector, previously, the demand side was taxed […] and now the supply side’s income will also be taxed,” he explained.
Aurangzeb also highlighted the importance of broadening the tax base and ensuring compliance. “I’m repeating myself. When Miftah [Ismail] sb proposed taxing retailers in 2022, it should have been implemented. We cannot have any segment that is not contributing to society and the exchequer,” he asserted.
He further noted the registration of 42,000 new retailers, who will be taxed starting in July. Emphasizing the need for compliance, he stated, “Non-filers should not exist. In this particular budget, we have taken it to the punitive level so as to make the non-filers realise that they [have to file their taxes].”
Aurangzeb reiterated the inevitability of the IMF programme for Pakistan’s economic stability and the government’s commitment to taking the necessary steps to secure it.
