By ISLAMABAD: The ruling coalition led by PML (N) has been facing the daunting task of tackling political cum economic crisis simultaneously. The challenge for the ruling government will be getting approval of the budget for 2024-25 from the Parliament to please the coalition partners, especially the Pakistan Peoples Party (PPP), and then pass a budget aligned with the IMF conditionalities.
In crux, the PML (N) has been facing a catch-22 situation as they are supposed to achieve two contradicting objectives with one move. It means that they are going to kill two birds with one stone.
First of all, It is the wish of the ruling coalition to strike a deal with the IMF for obvious reasons as all multilateral institutions as well as bilateral and confidant friends/partners clearly conveyed to Islamabad that Pakistan would have to undergo tight scrutiny of the IMF for achieving desired fiscal discipline so there was no other option but to go for another IMF program. The message is loud and clear. Minister for Finance Mohammad Aurangzeb clearly illustrated that there was no Plan B as the approaching of the lender of the last resort demonstrated that the country did not have any alternate plan except to get a bailout package from the IMF.
The IMF has come up with tight fiscal and monetary policies to stabilize the economy. The IMF is known for its prescription of a ‘one shoe fits for all’ approach to stabilize the economy by suffocating it through tight fiscal policies. The IMF has given the target to expand the tax-to-GDP ratio by over 1 per cent of GDP envisaging FBR’s target at Rs 12970 billion for 2024-25 against the revised target of Rs 9252 billion. The next fiscal year’s target requires growth of over 40 per cent to achieve the desired target.
To achieve the desired target of Rs 12970 billion, the FBR increased tax rates for salaried, and non-salaried class, real estate, retailers, and vehicles, removed GST exemptions, and slapped taxes on milk and milk products, mobile phones, tier-1 retailers of branded stores at 18 per cent, poultry feed, tractors, medicines, diagnostic kits, Federal Excise Duty on cement from 2 kg to Rs 3 kg, filter rods of cigarettes, sugar’s commercial supply Rs 15 per kg newsprint 10 per cent tax, imported personal computer 10 per cent, stationery items and many others items. The government imposed a sales tax on cellular phones of 18 per cent for not exceeding $500 and 25 per cent for exceeding the $500 limit.
The government slapped a ban on non-filers foreign travel. The government proposed a new category of late filers for selling and purchasing real estate plots as their rate is proposed on the higher side in the range of 6 to 8 per cent. The rate of non-filers in the case of selling and purchasing plots increased up to 12 per cent, 14 per cent, and 16 per cent under the name of progressive taxation depending upon the value of the transaction. The rate of Capital Gains Tax is imposed at 15 per cent for filers for real estate and 45 per cent for non-filers irrespective of any period and the same rate will be applied for stock gains.
Even now the IMF is showing its serious concerns over the FBR move to grant tax exemptions for another fiscal year for FATA/PATA areas and asked how the gap will be bridged because it was agreed with the IMF that this exemption would be abolished for the next fiscal year. At the cabinet level, it was extended for another fiscal year till June 2025. The IMF also objected to the government’s move for not to bring pesticides and fertilizer under the GST net in the budget.
On the other hand, the coalition partners especially the PPP asked the PML (N) led regime to bring some kind of relief to the masses. The possibility will be securing more development funds for Sindh and some parts of the Punjab and KPK and then the PPP might opt to give its vote and support for the approval of the budget for 2024-25 in the Parliament to ensure the survival of the PML (N) led regime from any collapse,
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