IMF Urges Pakistan to Increase Direct Taxation for Economic Stability

The IMF urges Pakistan to increase direct taxation and bring the untaxed sector into the tax net to achieve economic growth and stabilization. Pakistan has assured the IMF of introducing economic reforms, including timely increases in electricity and gas tariffs, to address revenue shortfalls.

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Aqsa Younas Rana
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IMF Urges Pakistan to Increase Direct Taxation for Economic Stability

IMF Urges Pakistan to Increase Direct Taxation for Economic Stability

The International Monetary Fund (IMF) has called on Pakistan to increase direct taxation and bring the untaxed sector into the tax net to achieve economic growth and stabilization. Experts at a discussion organized by the Sustainable Development Policy Institute (SDPI) in Islamabad emphasized the need for Pakistan to broaden its tax base and reduce reliance on indirect taxation.

Why this matters: A more equitable and sustainable tax system is crucial for Pakistan's economic growth and stability, as it can help address revenue shortfalls and reduce the country's reliance on foreign aid. By implementing these reforms, Pakistan can also improve its creditworthiness and attract more foreign investment.

The IMF's Regional Economic Outlook report, released in 2024, highlights the importance of increasing direct taxation to address revenue shortfalls and stabilize the economy. Pakistan has assured the IMF of introducing more economic reforms in the budget, with no new tax amnesty, exemption, or concession.

The government has also committed to the IMF to implement timely increases in electricity and gas tariffs. The IMF has demanded a hike in the gas tariff from June 2024 on a half-yearly basis and the issuance of a notification for the annual rebasing of electricity tariffs in 2024-25. The fund has also called for a review of power purchase agreements, reforms in subsidies for agricultural tube wells, and an end to electricity theft.

Pakistan's economy has been grappling with challenges, including a widening fiscal deficit, high inflation, and dwindling foreign exchange reserves. The IMF's recommendations aim to address these issues by focusing on revenue generation through direct taxation and bringing more sectors into the tax net.

The IMF's emphasis on increasing direct taxation aligns with the need for Pakistan to create a more equitable and sustainable tax system. By broadening the tax base and reducing reliance on indirect taxes, which often disproportionately impact the poor, Pakistan can work towards a more balanced and inclusive economic growth model.

As Pakistan moves forward with implementing the IMF's recommendations and economic reforms, it will be crucial for the government to strike a balance between revenue generation and protecting the interests of its citizens. The success of these measures will depend on effective implementation, transparency, and public support.

Key Takeaways

  • IMF urges Pakistan to increase direct taxation and broaden tax base.
  • Reforms aim to address revenue shortfalls, stabilize economy, and reduce foreign aid reliance.
  • Pakistan commits to IMF to introduce economic reforms, no new tax amnesty, and timely tariff increases.
  • IMF demands hike in gas tariff, reforms in subsidies, and end to electricity theft.
  • Successful implementation requires balance between revenue generation and citizen protection.