In a significant development, Pakistan has resolved all outstanding issues with the International Monetary Fund (IMF), paving the way for the approval of a $7 billion loan this month. The government is also preparing to tighten tax regulations, targeting existing taxpayers with new restrictions. This move follows the government’s recent decision to back down from tightening rules on traders.
The government has drafted amendments to the tax code, aiming to prevent existing income tax filers from purchasing new assets if their declared cash balances and income fall short of the cost of those assets. This comes after a review of data from the Federal Board of Revenue (FBR), which revealed that only 45,000 out of nearly six million tax return filers report an annual income exceeding Rs10 million.
“Thank God, all issues have amicably been resolved with the IMF, and this month the IMF board will give final shape to these issues,” Finance Minister Muhammad Aurangzeb said Thursday. His statement ends months of uncertainty surrounding the approval of the $7 billion Extended Fund Facility, which has been pending for the IMF board’s final nod.
IMF spokesperson Julie Kozack confirmed that the board is scheduled to meet on September 25 to approve the three-year loan package. Pakistan faced delays in securing the rollover of $16 billion in cash deposits and commercial loans, along with an additional $2 billion in commercial financing.
The approval of the new 37-month IMF deal will mark the beginning of a challenging economic journey for Pakistan. While the program is expected to bring further economic hardship, its successful implementation could provide much-needed stability.
As part of its plan to increase tax collection amid revenue shortfalls, the government is working on new legislation targeting the nearly six million existing tax filers, including business individuals and companies. Authorities believe that a majority of these filers have under-declared their assets and incomes in their annual tax statements.
The government’s plan includes charging higher tax rates on non-filers for asset purchases, which has historically led to a narrow tax base. However, the government has not yet abolished the category of non-filers, which continues to allow people to avoid entering the tax net.
Sources indicate that the government is considering amendments to the Income Tax Ordinance, either through an ordinance or by introducing a bill in the National Assembly. Under this proposal, even tax filers with insufficient declared assets may be prohibited from purchasing homes, plots, or cars. Additionally, they could face restrictions on withdrawing cash from banks if their total withdrawals are less than the amounts reported in their tax returns.
