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EDITORIAL: According to news reports, a presidential ordinance to withdraw sales tax exemptions, zero rating and reduced sales tax rates accounting for 330 billion rupees is likely to be promulgated within a week or so. The raison d’étre of the ordinance is, in all likelihood, to meet the International Monetary Fund (IMF) sixth review conditions. The revenue target for 2021-22 was 5.9 trillion rupees (as noted in the second to the fifth review negotiated in February 2021 with documents uploaded on the Fund’s website in April), a target that was more than met by the budgeted 5.8 trillion rupees for 2021-22; however, this target was premised on a growth rate of 1.5 percent last year. Thus with an upward revision of the Gross Domestic Product to 3.9 percent in 2020-21 the IMF has, in all probability, recalibrated the FBR target.

It is important to note that the FBR target as proposed by the Fund was no doubt discussed during the technical level sixth review talks that have ended, with policy talks to be led by Finance Minister Shaukat Tarin on the sidelines or subsequent to the ongoing IMF/World Bank annual meeting. These talks have not concluded as yet and the IMF is said to be validating the data that the Pakistan side has provided them. It, therefore, stands to reason that the ordinance will not be promulgated till the successful completion of the review.

While it is well known that the IMF is opposed to tax exemptions viewing it as a favour to the elite at the cost of the general public, what should be a source of concern, as it reflects government’s high-handedness, is that the task of formulating the ordinance has been assigned to FBR, Law Division and the Finance Ministry but so far there has been no interaction with the relevant stakeholders. This reflects the disturbing fact that there have been no lessons learned. Administration after administration has learnt to its cost that attempts to change existing taxes without consultations with the stakeholders have failed.

Copyright Business Recorder, 2021

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