ISLAMABAD (Dunya News/Web Desk) – Despite the fact that an overwhelming majority in Pakistan is facing a cost of living crisis, the International Monetary Fund (IMF) has demanded an increase in basic electricity tariff which, it says, essential to control rising circular debt.
At the same time, the Washington-based financial institution is unhappy with malfunctioning in trace and track system (TTS) designed to curb tax evasion, as boosting revenue collection and expanding tax base remains its primary focus.
Read more: Talks start to secure IMF programme, agreement reached on budget targets
The demand to go basic tariff hike comes after the two sides opened talks for a new IMF programme which is considered essential for economic stability of Pakistan.
SUBSIDY CUTS
It is said that the IMF wants to keep the power sector circular debt at Rs2,300 billion and gradual implementation of subsidy cuts – the measures that must be part of the next budget for 2024-25.
According to the IMF, one-third of the total subsidy Rs976bn reserved for the current fiscal year has been extended by January 2024.
The federal government must end the subsidy to the tune Rs249bn given under the head of tariff differential and other categories, it says and is also calling for another gradual cut in an amount of Rs125bn reserved for arrears and fines.
Read more: Improve tax collection or we will need another IMF package: Aurangzeb
As per the calculations made by the IMF, the subsidy cuts will help maintaining circular debt ceiling at Rs2,300bn while curbing power theft is also essential to achieving the goal.
However, the focus on energy sector efficiency means the lender is also demanding digitalization of all the organisations.
TAX EVASION
On the other hand, the IMF is also unhappy over the failure to introduce an effective TTS, as the visiting team held talks with the Federal Board of Revenue (FBR) top officials on subjects like tax structure and administration.
It is important to note that Prime Minister Shehbaz Sharif and Finance Minister Muhammad Aurangzeb have repeatedly described the FBR digitalisation a top priority to stop the leakages and control corruption.
Read more: No backtracking on tax net expansion: Aurangzeb
Last week, Shehbaz ordered a stern action against the FBR officials, including its former chairman Dr Muhammad Ashfaq Ahmed, allegedly involved in the installation of botched TTS in various industries, on the basis of an inquiry report.
And now, the FBR shared the same document with the IMF, sources say and added that the Washington-based lender has given a deadline to implement the system in five main sector and fully install it during the next financial year.
The sources say both sides have agreed to expand tax base and stop tax evasion, as a plan would be submitted to the IMF to cover the revenue shortfall.