There seems to be no end in sight of the International Monetary Fund’s (IMF) “do more” from Pakistan as the global lender’s latest demand includes implementing Rs1300 billion in new taxes, urging Pakistan to remove tax exemptions, broaden the tax base, and simplify the tax system to enhance revenue collection and reduce the fiscal deficit.
However, these new taxes are expected to aggravate inflation, already hovering around 24%, and adversely affect the living standards of Pakistanis, particularly the poor and middle class. They are likely to raise production and consumption costs, diminishing people’s purchasing power and potentially stunting economic growth amid the ongoing recovery from the Covid-19 pandemic.
While the government passed a bill in February 2023 to levy an additional Rs170 billion in taxes, it still falls short of the IMF’s targets. Opposition from sectors like agriculture, industry, and trade is strong, opposing the removal of tax exemptions and the hike in GST. Politically, the new PDM government will face backlash from opposition parties, demanding to reject IMF pressure and burdening the population with more taxes.
The government must navigate between meeting IMF commitments and safeguarding citizen interests. It needs to enhance tax administration, combat evasion, and expand the tax base without stifling economic activity or welfare. Moreover, it should ensure that new taxes are fair and progressive, with revenue allocated towards public services like healthcare, education, and infrastructure. Pro-growth and pro-poor policies are imperative to offset the adverse impacts of new taxes on inflation and living standards.
