IMF recommends Pakistan single tax collection authority, higher development spending

KARACHI: The International Monetary Fund (IMF) has suggested Pakistan to do away with layers of tax rates and their multiple collection mechanisms, officials revealed on Saturday, encouraging the country’s economic managers to introduce uniform tax rates and establish a single collection authority since it will bring down the cost of doing business in Pakistan and reduce duplication of taxes and wasteful documentation.
Led by Ernesto Ramirez Rigo, an IMF team is currently visiting the country to conduct the first quarterly review of the implementation of fiscal policies Islamabad agreed with the Fund while availing $6 billion bailout program in July this year.
“He [Rigo] also emphasized the harmonization of tax system and creation of a single tax base as it directly impacted the ease of doing business and went a long way in creating an enabling environment for commercial activities and boosting investor confidence,” the finance ministry said in a statement issued on Friday.
Pakistan has a complex and multilayered taxation system at the federal and provincial level, requiring a great deal of documentation.
“This [IMF-proposed authority] can eliminate duplication of taxes and minimize documentation work, though the stakeholders involved in this may not understand the proposal. This will also mitigate the fears of taxpayers eventually,” Dr. Abid Qaiyum Suleri, member of the Economic Advisory Council (EAC), told Arab News.
The federal government may face resistance from provincial administrations over the implementation of the single tax collection authority mechanism.
At the moment, Pakistan has informed the visiting IMF team that the federal and provincial administrations were in a continuous dialogue to improve coordination and create harmony on issues related to fiscal and budget management, multiplicity of tax rates and reconciliation of input adjustment, the finance ministry said.
The IMF delegation head appreciated the current level of understanding between the Center and the provinces, though he also hoped it would lead to a consensus between them over a harmonized tax collection mechanism, according to the ministry.
The government has been struggling with the country’s ailing economy, which is projected to squeeze from last year’s 3.3 percent to 2.4 percent during the current fiscal year, ever since it assumed political power in August 2018.
The visiting IMF mission appreciated “good financial and fiscal management and maintenance of expenditure within the budget,” the statement said, adding that the delegation chief “stressed upon full use of development budget to achieve development goals.”
As the IMF team measures Pakistan’s economic performance against the commitments made while availing the loan program, economists say that Islamabad has almost achieved its given targets and deserves the next tranche.
“We have reduced external deficit, provided the IMF team the list of privatization entities, increased energy costs, enforced flexible exchange rate regime and given autonomy to the State Bank,” Muzamil Aslam, a senior economist, told Arab News.
“The macro economic trends have started looking better … The IMF team should be satisfied,” Dr. Suleri agreed.