The government’s plan to increase taxes in the 2024-25 budget aims to boost revenue, which could help secure an IMF loan to avert another economic crisis, but it also risks provoking public anger.
Former officers, experts, and industrialists have reacted to the finances, which sets a tax revenue goal of 13 trillion rupees, forty% higher than the modern 12 months while lowering the monetary deficit from 7.4% to 5—Nine% of GDP. Former Federal Minister Miftah Ismail said that the authorities need to reduce the economic deficit under the continued negotiations with the IMF for a $6-eight billion mortgage. He cited that if the price range is permitted as provided, it would suffice for the IMF program, however accomplishing the three. A 6% boom goal might be hard.
Several analysts agree with this view. Methoudi Zanov of Emerging Market Watch stated that the budget, in its current form, should be acceptable to the IMF. He noted that the government has met nearly all IMF conditions, including withdrawing tax exemptions, increasing corporate tax for exporters, raising personal income tax rates, tightening regulations on non-filers, and increasing the petroleum levy. However, some analysts believe that if the IMF views the tax target as unrealistic, it might oppose it.
Finance Minister Aurangzeb expects a staff-level agreement with the IMF in July, although the IMF still needs to comment on the budget. The significant increase in the tax target results from a 48% rise in direct taxes and a 35% rise in indirect taxes. Non-tax revenue, including the petroleum levy, is expected to increase by 64%. The budget also imposes taxes on export sectors like textiles, which were previously exempt and constitute more than half of Pakistan’s exports.
Textile Industry Criticizes Budget as Regressive, Warns of Risks
The All Pakistan Textile Mills Association has called for a budget revision, labeling it highly regressive and warning of risks to the textile sector and its exports. The organization expressed concerns about serious consequences for employment, external sector stability, and overall economic and political stability. Musaddiq Zulqarnain, Chairman of Interloop and Director of the Pakistan Textile Council remarked that the budget prioritizes obtaining another Extended Fund Facility from the IMF but lacks innovation for national economic growth.
Prime Minister Shehbaz Sharif’s coalition government needs a strong parliamentary majority to pass the budget smoothly. Adhering to reform measures will face resistance from the already disgruntled public and key economic sectors. The government had to persuade the largest coalition partner, the PPP, to attend the budget session because they are unhappy with certain measures. Analyst Yousuf Nazar, formerly with Citibank, suggested that protests are mainly political and unlikely to cause significant problems for the government. The IMF program appears crucial for Pakistan’s recent stability, especially given the significant undocumented parallel economy that requires time and effort to bring under the tax net.
According to tax firm Tola Associates, Pakistan’s undocumented economy is large, and 44% of GDP does not significantly contribute to direct tax revenue. Influential traders and farmers have resisted registration and documentation of sales, and expanding the tax base is necessary for the country’s tax revenue to continue, harming the economy.
Former State Bank Governor Raza Baqir emphasized that the real challenge is implementation. He pointed out that the government has set ambitious tax targets relative to GDP in the past, and he hopes they will remember the lessons from failing to achieve such targets in this budget.
