THE IMF is reported to have accepted a request from Pakistan to delay some “significant sales tax and income tax reforms” for six months in view of resurging Covid-19 infections. These reforms are part of the $6bn loan deal reached last year to help shore up the country’s deteriorating balance-of-payments situation. The IMF is understood to have allowed the reprieve during technical-level talks on delaying tax measures in the sales tax act and on changes in personal-income tax slabs. Talks between Islamabad and the Fund on proposed changes in the corporate income tax regime, mostly related to the withdrawal of exemptions, will begin next month. It is likely that the IMF will approve the request on the same grounds and delay the execution of its proposals until the next financial year. More details in the coming weeks will reveal the grounds on which Pakistan has approached the IMF for postponing the much-needed tax reforms. However, it is clear that both the finance ministry and FBR feel it isn’t desirable or feasible to implement reforms at a time when the economy is already struggling to recover from the impact of Covid-19 cases that are increasing. But it is still uncertain whether the lender will agree to the downward revision of the revenue collection target of Rs4.9tr this fiscal or postpone additional measures for the latter half of the year.

For the last many decades, Pakistan has been trying unsuccessfully to fix its tax system, which is at the heart of the widening budget deficit and growing debt burden, to raise its tax-to-GDP ratio by broadening the narrow base, and reform administration and restructure the FBR. Many past attempts have failed because of two reasons: One, the wealthy classes, retailers, large growers, etc do not want to come under the tax net for selfish reasons. Two, the FBR machinery is inefficient and corrupt, and has little interest in netting the untaxed and under-taxed sectors. There is as much resistance to the reform efforts from within the FBR as outside it. The recent attempts by the incumbent government to implement reforms have fallen apart and we have seen Mr Shabbar Zaidi, who was brought from the private sector to fix the system, quit his job.

In the same vein, we have seen strong opposition from senior FBR officials to the soft interventions suggested by Dr Ishrat Hussain to improve the working of the board. The argument by the top FBR hierarchy that they could reform the taxation system — administration and policy — does not hold ground. How can those who are the target of the reform effort and have deep stakes in the status quo be trusted with this task? The IMF may have agreed to provide relief for now but time and renewed pressure from the lender will catch up with the FBR soon.

Published in Dawn, December 28th, 2020