ISLAMABAD: The government says its sixth review of the $6 billion Extended Fund Facility (EFF) for Pakistan will be taken up by the executive board of the International Monetary Fund (IMF) on Jan 12, paving the way for disbursement of about $1bn tranche.

Muzammil Aslam, spokesperson for the Ministry of Finance, said in a tweet on Thursday: “I am pleased to confirm 6th review will be presented to IMF Board on 12th January, 2022”.

Another official said the government was ready to get the Finance (Supplementary) Bill 2021 passed by the National Assembly to ensure reasonable time before the IMF board meeting.

The IMF directors traditionally require two weeks to review the memorandum of economic and fiscal policy measures.

Govt ready to get Finance (Supplementary) Bill passed by NA

Adviser to the Prime Minister on Finance and Revenue Shaukat Tarin had committed to the IMF that Pakistan would complete all five “prior actions” before requesting a meeting of the board of directors to approve revival of the $6bn EFF suspended in April this year.

Under those prior actions, the government, through the supplementary finance bill, will effect a net fiscal adjustment of almost Rs550bn during the remaining part of the current fiscal through a 22 per cent cut in development funds, about Rs360bn worth of withdrawal of tax exemptions with a revised tax target of Rs6.1 trillion and increase in petroleum levy on major petroleum products by Rs4 per litre per month.

Making an upfront announcement about “five prior actions” to secure approval of the IMF board for disbursement of $1.06bn and revival of the IMF programme in January, Mr Tarin had recently said the government would also ensure “approval” by parliament to grant autonomy on matters of monetary policy, exchange rate and recruitments to the State Bank of Pakistan (SBP), which would remain answerable to parliament as it was now.

These prior actions include SBP (Amendment) Bill, withdrawal of tax exemptions and increase in energy tariff. The action pertaining to tariff adjustment has already been taken while bills to end tax exemptions and give autonomy to the SBP have been finalised.

Under the supplementary finance bill, the Federal Board of Revenue (FBR) is seeking amendments to three key tax laws relating to customs, sales tax and income tax, besides the services tax law for the federal capital.

The underlying purpose of the reform exercise, as pushed through by the international lenders, is to “rebuild the tax system on ideal principles of taxation and without any distortions” as far-reaching structural and administrative reforms have already been initiated by the ‘present government’ to “achieve economic and financial stability through inclusive reforms and sustainable economic growth”.

In terms of revenue generation, withdrawal of exemptions and removal of different rates under the sales tax law appear to be the biggest sources of additional tax. There is a long list running into hundreds of items that would attract higher sales tax rates and application of fresh tax.

“Under the Sales Tax Act 1990, zero-rating under the Fifth Schedule is proposed to be streamlined and certain entries are to be withdrawn,” documents suggest. “The exemption regime under the Sixth Schedule is proposed to be curtailed including pharmaceutical sector and restricted to import and local supply of essential commodities only.”

Published in Dawn, December 24th, 2021