By Ahmed Mukhtar Naqshbandi
ISLAMABAD: The International Monetary Fund has asked Pakistan to increase the general sales tax rate to a minimum of 18 percent to collect more taxes.
The country’s debt servicing cost was projected to increase to Rs5.2tr in the fiscal year 2022-23.
The IMF put the demand to increase the standard general sales tax rate as the government shared its revised macroeconomic projections a day before, which showed economic growth rate slowing down to 1.5 percent and inflation accelerating to 29 percent.
The lower economic growth and higher inflation would lead to higher unemployment and poverty in the country.
On Thursday, the government shared the details of the $30bn external financing requirements and the projected inflows. But the global lender did not appear convinced about the country’s ability to raise roughly $8bn from foreign commercial banks and capital markets in these challenging times, according to the sources.
They said that during the three days of talks, the government exchanged data about the foreign inflows, the country’s debt profile, and the macroeconomic projections.
They added that the International Monetary Fund demanded the Pakistan government should consider increasing the GST rate by 1 percent to 18 percent to raise additional taxes in the fiscal year 2022-23. The general sales tax was considered highly inflationary and 1 percent increase is likely to push the prices of all goods further upwards.
The International Monetary Fund was told that the total cost of the debt servicing could rise to a whopping Rs5.2 trillion in the fiscal year 2022-23, according to the sources. The government had budgeted Rs3.950tr but the revised projections were Rs1.2tr or 31 percent higher than the budget estimates.
The Rs5.2tr would be equal to 54 percent of the budget announced in June 2022 and massive spending projections could lead to a demand by the International Monetary Fund for cut in other expenses and raise more taxes to create some fiscal space, said the sources further.
The government had already spent Rs2.57tr on debt servicing during July-December period of the fiscal year 2022-23. The central bank in January increased the interest rates to 17 percent, which might not help check inflation but will surely further bleed the budget.
