ISLAMABAD – Minister for Finance Ishaq Dar introduced the Finance Supplementary Bill 2023 in the lower house in order to obtain the much-needed arrangement with the International Monetary Fund (IMF).
The measure was introduced in the National Assembly session in order to meet the foreign lender’s terms in order to secure the much-needed loan programme that would enable the country avoid default.
According to the proposed budget, the General Sales Tax (GST) on luxury commodities would be raised from 17% to 25%, and the Federal Excise Duty (FED) on business and first-class plane tickets will be raised to Rs20,000 or 50%, whichever is greater. The finance minister also suggested a 10% withholding adjustable advance income tax on wedding function costs, as well as a rise in FED on cigarettes, soft drinks, and sugary beverages.
The FED on cement would be increased from Rs1.5/kg to Rs2/kg, and GST will be hiked from 17% to 18% in the Finance Supplementary Bill 2023, but GST will not be levied on basic products like as wheat, rice, milk, legumes, vegetables, fruits, fish, eggs, and meat.
Mr Dar said in the Finance Supplementary Bill 2023 that the government proposed a Rs40 billion increase in the budget of the Benazir Income Support Programme (BISP) to safeguard vulnerable sectors of society from the effect of rising inflation.
“The government has proposed raising the BISP budget from Rs360 billion to Rs400 billion, giving Rs40 billion in additional money to assist (BISP) beneficiaries,” he said while introducing the Finance (Supplemental) Bill-2023 in the Lower House of Parliament.
The refusal of the President
President Arif Alvi met with Finance Minister Ishaq Dar on Tuesday, during which the latter updated the head of state on the continuing talks with the International Monetary Fund. The president praised the government’s efforts towards a possible settlement with the IMF, while stating that the state will keep the pledges made by the world’s financial organisation.
The minister also said that the government intended to levy additional taxes via the legislation. The president turned down the government’s proposal. Dr. Alvi requested that the finance czar reassure parliament on the financial proposals. He requested Mr Dar to convene a legislative session as soon as possible to enact a law.
The mini-budget is being established in response to the International Monetary Fund’s (IMF) request that Pakistan improve its income and widen its tax base. To satisfy yet another IMF demand, the government raised gas and electricity rates on February 13, imposing an additional burden on the population.
Pak-IMF discussions continue
Pakistan, on the other hand, and the International Monetary Fund (IMF) have begun discussions about the disbursement of the ninth tranche of the Extended Fund Facility (EFF).
The federal government hopes that these virtual negotiations will result in a settlement that relieves the country’s struggling economy of the ever-increasing pressures. Finance Secretary Hamed Yaqoob Sheikh stated the “length (of the negotiations) cannot be determined but we want to finish things up at the soonest”. From January 31 to February 9, Islamabad had rigorous discussions with an IMF mission but failed to achieve an agreement.
In an earlier statement, the IMF said that both parties had committed to remain active and that “virtual conversations would continue in the coming days to finalise the implementation specifics” of the measures discussed in Islamabad.
The International Monetary Fund and Pakistan were to begin virtual talks in order to negotiate an agreement to unleash money vital to keeping the cash-strapped south Asian country viable.
According to a Pakistani official, the two parties were unable to achieve an agreement last week, and a visiting IMF mission left Islamabad after 10 days of discussions, but negotiations will continue. Pakistan is in desperate need of funding as it deals with a devastating economic catastrophe.
“The duration (of the meetings) cannot be determined, but we aim to finish them up as soon as possible,” Finance Secretary Hamed Yaqoob Sheikh said in a text message to Reuters, confirming that talks will resume on Monday.
The talks are centred on obtaining an agreement on a reform plan under the country’s $6.5 billion bailout programme, which began in 2019. A deal on the ninth review of the programme would save up more than $1.1 billion.
Statement from the IMF
At the end of its 10-day visit to Islamabad on Friday, the IMF published a brief four-paragraph statement emphasising the need of “timely and decisive policy execution, as well as firm financial assistance from official partners” for Pakistan to effectively reestablish macroeconomic stability. It went on to say that virtual negotiations will continue to finalise policy implementation details, meaning that an agreement to restart the programme via a staff-level agreement may still take some time while Pakistan tries to carry out previous measures.
“The IMF team appreciates the Prime Minister’s commitment to implementing measures necessary to protect macroeconomic stability and thanks the authorities for the fruitful conversations,” mission leader Nathan Porter was quoted as saying in a statement.
“During the trip, significant progress was achieved on policy measures to address internal and foreign imbalances.
“Key priorities include strengthening the fiscal position with permanent revenue measures and reduction in untargeted subsidies, while scaling up social protection to help the most vulnerable and those affected by the floods; allowing the exchange rate to be market determined to gradually eliminate the foreign exchange shortage; and enhancing energy provision by preventing further accumulation of circular debt and ensuring the viability of the energy sector.
“The prompt and decisive execution of these measures, as well as the unwavering financial backing of official partners, are vital for Pakistan to effectively re-establish macroeconomic stability and promote its sustainable development.”