IMF Denies Plans to Urge Pakistan to Increase Taxes on Salaries and Business Income
In a recent development, the International Monetary Fund (IMF) has dismissed media reports that suggested it would recommend Pakistan to hike taxes on salaries and business income. Esther Perez Ruiz, the IMF’s resident representative in Pakistan, clarified the situation in an email statement to Reuters, stating that the IMF has not issued any directives concerning changes in taxation for these sectors.
This clarification comes in the wake of media speculations, which emerged a day earlier, hinting at a possible revision of tax slabs. The reports indicated a reduction from seven to four tax slabs for the salaried and business class, potentially impacting middle and upper-middle income groups in Pakistan. The speculation was based on a proposal reportedly made by an IMF technical mission during a fortnight-long review of Pakistan’s tax policies.
Pakistan, currently under a caretaker government, has been facing significant economic challenges. The country recently dodged a sovereign debt default thanks to an IMF loan program approved in July. Under the $3 billion Stand-by Arrangement (SBA), Pakistan received $1.2 billion as the first tranche. The nation has been struggling with a severe balance of payment crisis, marked by depleted foreign exchange reserves, high inflation rates, and substantial currency devaluation.
The IMF bailout deal necessitated fiscal adjustments from Pakistan, including the introduction of $1.34 billion in new taxes. These measures led to a record inflation rate of 38 percent year-on-year in May, the highest in Asia, with inflation consistently above 30 percent.
As Pakistan continues to tackle these economic hardships, the role of the IMF remains pivotal in stabilizing the country’s financial situation. The government now faces the challenge of implementing economic reforms while addressing the concerns of different income groups affected by the fiscal adjustments.