IMF experts highlighted the need to end sales tax relaxation on various goods.
IMF Recommends Pakistan to Raise GST on Essential Items to 18%. The International Monetary Fund (IMF) has suggested that Pakistan should implement an 18% General Sales Tax (GST) on essential items such as food, medicine, petroleum products, and stationery. This recommendation comes as part of the IMF’s set of suggestions provided to the Pakistani government ahead of the FY2024-25 budget.
During their visit to Pakistan in December 2023, IMF experts highlighted the need to end sales tax relaxation on various goods. The report, dispatched to Islamabad in February 2024, proposes bringing several essential items under the standard 18% GST rate, including unprocessed food, medicine, petroleum products, and stationery.
According to IMF estimates, rationalizing GST rates could potentially generate revenue equivalent to 1.3% of Gross Domestic Product (GDP), amounting to approximately Rs1,300 billion for the national exchequer.
In addition to recommending changes in GST rates, the IMF has called for the removal of distortionary tax policies related to compliance. This includes abolishing minimum taxes, additional taxes, as well as the Ninth and Tenth Schedules.
It was recently reported that Pakistan is considering seeking a loan package from the IMF, along with an additional $1.5 billion in climate finance. The country is exploring the possibility of expanding the program to $7.5-8 billion, with discussions underway to include climate finance in the upcoming bailout package.
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The IMF’s recommendation to increase GST rates on essential items is likely to spark debate and discussions within Pakistan’s economic and political spheres, as policymakers weigh the potential impact on consumers and the broader economy.
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