The federal government seems to have taken some steps to become eligible for the IMF balance of payments support. Helped by a sharp slump in oil prices, the government has done away with oil subsidy

Electricity prices are being enhanced and by June next year power subsidies are targeted to go; a temporary pause because of huge public outcry against power tariff may delay the process. The objective is to cut the fiscal deficit.

The government has reportedly also made a fresh commitment to withdraw tax exemptions to improve revenue collection. And while the central bank’s discount rate was raised by three per cent to 10.5 per cent recently, the bank’s lending rates have jumped up to 18 per cent. This will make the government’s inflationary borrowing more difficult and IMF more receptive to Pakistan’s request for balance of payments support..

Some of the reported IMF concerns are: Rising non-development spending that it wants to be cut including a phased reduction in defence budget by 30 per cent; huge subsidies, widening fiscal deficit, low tax-to-GDP ratio, stubborn inflation and tax exemptions. As reported in a section of the press, the IMF also wants interest rate to go up.

The international financial institutions had given Pakistan some indicative targets to improve the macro-economic fundamentals by December to facilitate disbursements of existing credit facility, frozen by them. The steps taken by government in this direction has helped. Islamabad get a letter of comfort from IMF, which facilitated disbursement of $500 million from the Asian Development Bank.

According to officials, IMF has not been formally approached byPakistan. Backed by policy actions taken so far, informal dialogue between the two sides is helping prepare the ground for a quick bailout package.

The federal taxation reforms committee report is ready for taking a decision and going into action. There is urgent need for increasing the tax revenues. But the taxation should not be too heavy at a time when the economic growth is slowing down. Definitely, there is a room for increasing income tax on farm incomes by the provinces as its full potential is far from being realised.

Big farmers should not be allowed to escape the tax net when support and procurement prices are being raised significantly for crops like wheat and rice. However, small farmers should be encouraged to save and invest.

So much money is being pumped into shares market by the government and it is time that capital gains should also be taxed. There is a need for taxing large sectors with huge incomes. But what has been economically desirable has been regarded politically undesirable, particularly taxing adequately real estate transactions. It will help provincial governments to improve their tax revenue.

The capital gains tax would prevent wild speculation on the stock market. We want the investors to hold on to their shares for a reasonable period instead of being all the time involved in speculating trading. The purpose of a stock exchange is to promote investment and not to increase speculation or indulge in simple gambling.

India recently raised its capital gains tax by 10 per cent and the Prime Minister Manmohan Singh said the stock holders will take it in their stride and they have. So Mumbai has a stable stock market unlike the volatile Karachi Stock exchange.

There should be a tax on windfall gains so that the government benefits by the sudden large gains of any group. Mr Shaukat Tarin, Advisor to the prime minister on finance says there will be no sacred cows this time. All will be treated uniformly. Let us see how that happens when the stock brokers are too powerful and the farm lords rule the country.