Pakistan’s Finance Minister Mohammed Aurangzeb. Reuters
Pakistan’s Finance Minister Mohammed Aurangzeb said an International Monetary Fund bailout “will not be the country’s last resort” if the government cannot significantly increase tax revenues. His warning came amid growing opposition to Pakistan’s latest budget.
Aurangzeb said he was “relatively confident” of reaching a staff-level loan agreement with the IMF, which his ministry had previously estimated at $6 billion to $8 billion, “but this will not be the last fund program unless we increase tax revenues.” Financial Times.
He stressed that the tax hike budget announced last month was aimed at raising revenues and satisfying the demands of the IMF, which has called on Islamabad to improve tax collections, among other controversial measures.
The budget passed by Pakistan’s parliament aims to raise 13 trillion Pakistani rupees by next July to ease a debt burden that has caused 57 percent of government revenue to be eaten up by interest payments.
A tax-heavy budget that puts a strain on ordinary people’s wallets
However, the burden of the increased taxes will fall mainly on salaried workers. What makes Pakistan’s budget controversial is the fact that, far from providing relief to the middle class, parliament has increased the effective income tax rate for salaried workers to 39 percent, for corporate workers to 44 percent and for non-salaried workers to 50 percent from last year.
Interestingly, the Shehbaz Sharif government has exempted income tax on the sale of immovable property by serving or retired bureaucrats and serving or retired military personnel.
Taxes are rising on already stressed wage earners at a time when certain segments of society have lost almost half their purchasing power over the past five years.
Aurangzeb defends the budget
Pakistan’s finance minister stressed that the country needs the capacity to repay all its loans. “We have to create the capacity to repay the loans,” Aurangzeb said. “As long as this economy remains import-based, what’s going to happen is, as soon as it heats up, the dollars will run out. [and] We have to knee-jerk turn to the lender of last resort,” he added.
Aurangzeb stressed that Gulf investors also want equity. “It’s time to be realistic,” he said. “It’s our responsibility to provide bankable and investable projects.”
He also expressed frustration over the reputation of corruption at Pakistan’s tax-collection agency, the Federal Board of Revenue. “People don’t want to deal with the tax authorities because of corruption, harassment and people seeking quick money and favorable payments. This is not sustainable,” Aurangzeb asserted. “I empathize with the pain people will feel. At least in the banking sector, I was one of the high taxpayers,” he added.
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