Fears of further inflation surge as IMF presents new demands to Pakistan

Islamabad:  Concerns about a fresh wave of inflation loom over Pakistan as the International Monetary Fund (IMF) introduces new taxation demands on essential commodities in the country.

As per reports in local media, the global moneylender has demanded the government of Pakistan implement an 18% General Sales Tax (GST) on various items including food, medicine, petroleum products, and stationery.

The IMF has recommended the Federal Bureau of Revenue (FBR) bring several dozen items under the standard rate of 18% GST, including unprocessed food, stationery, medicine, POL products, and others.

The IMF estimated that rationalizing GST rates could generate 1.3 percent of Gross Domestic Product (GDP) revenue, which equates to Rs1,300 billion in national exchequer.

However, the IMF did not estimate how much the inflation-affected public would suffer in the coming months and years if such a drastic measure of GST was implemented through indirect tax hikes.

The IMF recommendations highlighted the abolition of the Fifth Schedule, the abolition of Sixth Schedule exemptions, and the abolition of the reduced rate of tax under the Eighth Schedule of sales tax.

IMF has decided to end the zero-rating of all goods except export goods under the Fifth Schedule, limit the exemption to the supply of residential property (other than the first sale) under the Sixth Schedule and demand that all other goods be brought to the standard GST rate.

It will also tax fuel in line with the average of comparators in the region and emerging economies, a media report said, citing an IMF report.

The IMF has also called for the removal of reduced rates under the Eighth Schedule and bringing all goods to standard GST rates, except for essential items such as food items, and essential education and health items which will be taxed at a single reduced rate of 10 percent.

Overall, the IMF has called for the removal of all distortionary tax policy changes related to compliance, including the abolition of minimum taxes and additional taxes, as well as the abolition of the Ninth and Tenth Schedules.

On the integration of GST, it is recommended to remove all zero-ratings under the fifth schedule except exports and bring all other items to the standard rate of GST which is currently 18%.