The International Monetary Fund (IMF), in its third review of Pakistan’s economic performance under a program supported by a stand-by arrangement (SBA), stressed the importance of the government’s efforts to broaden the country’s tax base and improve tax administration.
The IMF approved Pakistan’s request for a waiver for the non-observance of its quarterly budget deficit target to end-September, which was 1.2% of GDP (Gross Domestic Product) but which was breached by the actual outcome of 1.5% of GDP.
Takatoshi Kato, the IMF’s Deputy Managing Director, stated that: “The Pakistani authorities have made significant efforts to stay the course on stabilization and structural reform against the backdrop of weak external demand and a difficult security and political environment.”
“The fiscal slippage in the first quarter of 2009/10 was due partly to factors beyond the authorities’ control,” he continued, announcing that: “The authorities are committed to strengthened fiscal discipline, including the use of contingencies.”
“Resolute implementation of tax administration reforms and timely disbursement of the pledged foreign financing will help facilitate fiscal management and prevent excessive recourse to domestic borrowing and undue compression of social and development spending,” he added.
The IMF’s opinion is that “the introduction of the value-added tax (VAT) and associated administrative reforms, scheduled for July 1, 2010, is the key to strengthening revenue”.
Prompt submission of the VAT law to parliament and its passage is, according to the IMF, therefore considered to be of the upmost importance in producing the hoped-for increase in tax revenues.
Strengthening tax administration will also be a key to achieving the government’s tax targets. The IMF said that “the authorities remain committed to strengthening administrative capacity to ensure timely implementation of the new system”.
It was confirmed that completion of the review enables the immediate disbursement of an amount equivalent to about USD1.2bn, bringing total disbursements to Pakistan under the program to over USD6.5bn. The 23-month SBA, after its increase in August 2009, amounts to a maximum of USD11.35bn to end-2010.
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