Pakistan’s Finance Minister Muhammad Aurangzeb has issued a stark warning, stating that the country’s current bailout from the International Monetary Fund (IMF) will not be its last if the government fails to significantly boost tax revenues. This statement comes amid growing dissent regarding Pakistan’s latest budget, which has been met with criticism from various quarters.
Aurangzeb expressed a degree of confidence in reaching a staff-level agreement with the IMF for a loan, previously estimated at $6 to $8 billion. However, he stressed that this would not be Pakistan’s final encounter with the IMF if substantial improvements in tax collection are not achieved. The finance minister emphasized that the tax-heavy budget, announced last month, is designed to shore up public revenue and meet the IMF’s stringent requirements. The IMF has been pushing for enhanced tax collection alongside other controversial measures, a demand that has been reflected in the budget passed by the Pakistani parliament.
The budget aims to raise a staggering PKR 13 trillion by next July, with the ultimate goal of reducing Pakistan’s burgeoning debt burden. The interest payments on this debt have consumed a significant 57% of government revenue, highlighting the dire financial situation the country is facing. The budget’s most controversial aspect is its heavy reliance on tax increases, particularly affecting salaried workers. The National Assembly has increased the effective income tax rate for salaried individuals to 39%, for associations of persons to 44%, and for non-salaried individuals to a staggering 50% compared to the previous year. This decision has drawn criticism as it further burdens an already struggling segment of society.
Adding to the controversy, the Shehbaz Sharif administration has exempted income tax on property sales for serving and retired bureaucrats and serving and retired military personnel. This exemption, seen by many as favoring specific sections of society, has further fueled public discontent. The decision to increase taxes on the salaried class, who have experienced a near-halving of their purchasing power over the last five years, has been met with outrage.
Defending the controversial budget, Aurangzeb underscored the critical need for Pakistan to develop the capacity to repay its mounting loans. He stated that the country’s reliance on imports has created a vulnerability, making it susceptible to economic fluctuations and ultimately forcing it to seek financial assistance from international lenders. He also highlighted the need to attract foreign investment, particularly from Gulf investors seeking equity opportunities.
Aurangzeb expressed disappointment with the reputation for corruption within the Federal Board of Revenue (FBR), Pakistan’s tax collection agency. He acknowledged the perception of corruption, harassment, and demands for bribes, which he described as detrimental to the sustainability of the tax system. He emphasized the need to address these issues and create a more transparent and reliable system.
Aurangzeb acknowledged the hardship the budget would impose on the public, drawing on his own experience as a high-income taxpayer. His personal connection to the economic challenges faced by the population adds a layer of complexity to his message and underscores the difficult choices the government has been forced to make in navigating the current financial crisis.
