The International Monetary Fund (IMF) resident representative in Pakistan on Friday denied media reports that the lending body is planning to ask Pakistan to increase taxes on salaries and business income and increase the maximum threshold for the petroleum levy.
Media reports had been circulating stating that the IMF asked Pakistan to cut the number of tax slabs for the salaried and business class from the existing seven to four, increasing tax incidence on the middle and upper-middle income groups. There have also been reports of an increase in the maximum petroleum development levy.
“There are no plans at this time,” Esther Perez Ruiz, IMF’s resident representative in Pakistan, told Reuters in an email.
Pakistan is operating under a caretaker government after an IMF loan program, approved in July, helped avert a sovereign debt default.
Under the $3 billion standby arrangement, Pakistan received $1.2 billion from the IMF as the first tranche in July.
Pakistan was facing an acute balance of payment crisis, with its foreign exchange reserves diminished to barely three weeks of controlled imports, along with historically high inflation and an unprecedented currency devaluation.
Under the bailout deal, the IMF also got Pakistan to raise $1.34 billion in new taxation to meet fiscal adjustments. The measures fuelled all-time high inflation of 38% year-on-year in May, the highest in Asia, which still is hovering above 30%.
Pakistan secured a $3 billion IMF loan in July, raising taxes and avoiding default. However, rumors of further tax hikes on salaries and businesses, along with a petroleum levy increase, have been denied by the IMF. This suggests potential tension between Pakistan’s need for further IMF support and the public’s tolerance for increased taxes, especially amidst high inflation. The outcome hinges on finding a balance between fiscal stability and social unrest.