The finance ministry and the IMF are in intense negotiations before the 2024-25 budget due to strict demands from the IMF.
The IMF wants Pakistan to increase its tax targets, remove subsidies, tax the agriculture sector, and increase levies on power, gas, and oil. They also want the government to privatize failing state entities and improve administration.
Last year’s tax target was nearly Rs9.4 trillion, but the IMF now wants it raised to Rs11 trillion. The government finds these demands tough to meet given the current economic situation but hopes to negotiate better terms.
Economists warn that the increased tax targets could harm the already struggling industry by raising production costs and encouraging imports.
Recently, the State Bank reduced the interest rate from 22% to 20.5% after inflation dropped, which was seen positively by businesses. However, Pakistan, heavily indebted to the IMF, faces a challenging position.
Experts suggest broadening the tax base and avoiding more burdens on already taxed areas. They advise careful negotiations with the IMF to avoid negative impacts on the economy and political stability. Additionally, they recommend taxing agricultural income but not inputs to protect small farmers and control food inflation.