ISLAMABAD: The International Monetary Fund (IMF) on Wednesday said that the proposed budget missed the opportunity to broaden the tax base, terming the new tax amnesty scheme a “damaging precedent”.
In a first official reaction to the expansionary Rs14.5 trillion budget, Esther Perez Ruiz, the resident representative of the IMF, said that the amnesty scheme is also against the good “governance agenda” and against the $6.5 billion programme objective.
The statement highlights the serious differences that persist between Pakistan and the IMF, which now may not be bridged in the remaining 15 days.
“The draft FY24 Budget misses an opportunity to broaden the tax base in a more progressive way, and the long list of new tax expenditures reduces further the fairness of the tax system,” Esther stated.
She added that the new tax expenditures also undercut the resources needed for greater support for the vulnerable Benazir Income Support Programme (BISP) recipients and also development spending.
The IMF gave the statement five days after the presentation of the new budget in the National Assembly by Finance Minister Ishaq Dar, which also carried an income-whitening scheme.
“The new tax amnesty runs against the programme’s conditionality and governance agenda and creates a damaging precedent,” Esther stated, echoing the views expressed by many Pakistanis.
Under the IMF programme, Pakistan cannot give any type of tax amnesty scheme and the Pakistan Democratic Movement government had also agreed to this condition but is now violating it.
The government has proposed an amendment in Section 111 (4) that increased the question-free remittance limit from “five million rupees” to “rupees equivalent of one hundred thousand United States dollars”. At the current exchange rate, about Rs30 million can be whitened without disclosing the source of income.
The IMF also suggested inclusion of more measures to address the energy sector’s liquidity pressures alongside the broader budget strategy.
The resident representative said that the IMF staff remains engaged to discuss policies to maintain stability. “The IMF team stands ready to work with the government in refining this Budget ahead of its passage,” Esther said.
Her statement indicates that the IMF would not endorse the budget in its present form and the chances for completion of the 9th review of the programme have almost diminished.
Only two weeks are left until the expiry of the IMF extended programme and still $2.6 billion remain undisturbed due to delay in meeting the conditions agreed with the IMF, first by the PTI government and now by the coalition government.