After some uncertainty was produced by a document the Finance Ministry submitted to the International Monetary Fund (IMF) for the $3 billion deal, ISLAMABAD’s Finance Minister Ishaq Dar ruled out any new levy on agriculture and the construction sectors on Friday.
Dar, speaking before a National Assembly session, firmly stated that no new taxes would be levied upon the agricultural and construction industries. “We have already endured the pain and met all prior actions of the IMF program,” he continued.
According to the minister, a dozen or so newspapers reported that new taxes would be levied on the building and farming industries.
“This is the result of profound misunderstanding,” Dar remarked.
The Finance Ministry’s request for the $3 billion Stand-by Agreement included a Memorandum for Economic and Financial Policies (MEFP), which is where the confusion initially began.
According to the Ministry of Finance’s MEFP document sent to the IMF, “our FY24 budget advances fiscal consolidation through a primary surplus of Rs401 billion —built on a set of credible measures that help: (i) sustainably raise additional revenue by targeting undertaxed sectors like agriculture and construction.”
This week, the IMF published both the MEFP and the staff report. The government also detailed the expected tax revenue from these industries in the same report.
The government promised the IMF that it would collect an extra Rs19 billion from non-filers on second homes and other items of high wealth, at a rate of 1% of the value. With an exemption for first-time homeowners and a threshold of Rs25 million, this tax will go into force in India in July 2022 at a rate of 1%.
According to the MEFP, “the threshold and exclusion of first homes for non-filers were abolished by the Finance Act, 2023, with no changes for those on the active taxpayer list.”
According to the report, the government could collect an extra Rs15 billion from builders and developers if it collected an advance tax proportional to the area of the land on which their projects were built.
“By increasing the advance tax on the purchase and sale of immovable property from 2% to 3%, we expect to add sustainable revenue of Rs46 billion,” the MEFP said.
Dar reiterated that Rs215 billion in “fiscal measures” were taken by the government in order to fund the new initiative.
Measures of Rs254 billion were shown in the MEFP paper. The study includes a comprehensive tax breakdown of Rs254 billion.
The finance minister assured the lower house that the MEFP and the LoI will be posted on the Ministry of Finance’s website as soon as they were finalized.
Dar predicted that following the second assessment in November, the IMF would release the second installment of Pakistan’s $700 million loan.
After the third assessment, in February of 2019, the remaining $1.1 billion would be released, he said.
The government reaffirmed its pledge to the IMF in the LoI it presented that it would not introduce any new tax amnesties or award any new tax exemptions in FY 2023-24, either through the budget or statutory regulatory orders (SROs), without first receiving agreement from the National Assembly.
According to the IMF study, the SBP carried out a themed AML/CFT inspection in connection with the most recent tax amnesty for the construction sector, issuing fines to financial institutions for AML/CFT deficiencies.
It urged financial institutions to establish policies for minimizing the risks involved with tax amnesty initiatives.
Land title paperwork, real estate regulatory bodies, availability of long-term financing, foreclosure legislation, and credit scoring are just some of the structural hurdles Pakistan cited to the IMF regarding the housing and construction sector.
Progress is being made to remove some of these obstacles, it added, and the government acknowledged the need for greater work in collaboration with private sector participants and provincial government officials.
Dar, commenting on the state of Pakistan’s reserves, noted that the country’s holdings had begun to increase following the IMF agreement.
As of July 14th, the State Bank of Pakistan’s (SBP) reserves increased from $4.2 billion to $8.7 billion.
Saudi Arabia contributed $2 billion, the IMF contributed $1.2 billion, and the United Arab Emirates contributed $1 billion to the SBP during the week of July 14, 2023.
Dar stated the government’s goal to keep things roughly as they were when they took office. He anticipated that within two years, inflation would decline to 7%.
According to the SBP’s projections, Pakistan’s inflation rate will drop to 7% over the next two years under the current government’s measures, the finance minister announced.
The central bank has often predicted that inflation will decline to 7% after two years, but this prediction has never come true.
According to the IMF, the country’s central bank lacks a coherent plan to combat rising inflation.
