ISLAMABAD, Sept 3 (Reuters) – Pakistan’s Finance Minister, Muhammad Aurangzeb, reaffirmed on Tuesday that the government will move forward with its new tax plans for the retail sector, despite threats of strikes and public backlash. These taxes are part of an ambitious revenue-boosting strategy aimed at securing approval from the International Monetary Fund (IMF) for a $7-billion loan. The reforms, introduced in the June budget, have triggered widespread protests, including a nationwide strike by retailers last week.
In a televised address, Aurangzeb made it clear that the government would not backtrack on its plans. “One thing I want to be very clear about … This is not going to be taken back,” the finance minister stated, urging wholesalers, distributors, and retailers to contribute to the economy through these new taxes. The move is seen as essential to meeting the revenue targets agreed upon in a staff-level deal with the IMF, which is part of a 37-month loan programme.
Retailer strikes and public protests
The government’s tax reforms have faced strong opposition, with retailers staging strikes to demand the withdrawal of the new tax scheme and a reduction in electricity rates. These protests reflect growing discontent with Pakistan’s economic situation, as citizens grapple with high inflation, rising tariffs, and economic uncertainty. Last week’s strike was organized by the All-City Tajir Ittehad Association, led by Muhammad Sharjeel Goplani, who warned of an indefinite strike if the government did not meet their demands. However, no further action has been announced since the initial strike.
Despite these protests, Aurangzeb remains firm in his resolve to implement the new taxes, which are viewed as a critical step in stabilizing the nation’s fragile economy. The tax reforms are essential for generating additional revenue to meet the IMF’s conditions, including tackling the country’s soaring debt and energy sector subsidies.
IMF loan and economic reforms
Pakistan is in the advanced stages of securing approval from the IMF board for the $7-billion loan, which is expected to be finalized in September. The IMF programme is critical for the cash-strapped South Asian nation, as it faces severe economic challenges, including a looming balance-of-payments crisis.
Prime Minister Shehbaz Sharif echoed the finance minister’s sentiments, stating that the government is working diligently to meet the IMF’s conditions and expressed hope that this would be Pakistan’s last loan programme with the international lender.
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The IMF board’s approval hinges on Pakistan securing financing assurances from its development and bilateral partners. Media reports have indicated that the loan approval may have been delayed due to a lack of additional financing and unpaid energy sector subsidies announced by the eastern province of Punjab and the federal government. However, Punjab’s information minister, Azma Bukhari, denied that the province had received any communication from the IMF or the federal government regarding an electricity subsidy.
Energy sector concerns and economic outlook
The IMF has expressed concerns over Pakistan’s unresolved debt in the power sector, which has been a significant issue for the country’s economic stability. In April, the IMF ended a $3-billion bailout that led to higher electricity tariffs, which have disproportionately affected the poor and middle class. The tariff hikes have even resulted in a decrease in household energy consumption for the first time in 16 years.
Despite the challenges, Moody’s recently upgraded Pakistan’s credit rating to Caa2, citing increased certainty around external financing following the IMF staff-level agreement. Moody’s expects the IMF board to approve the loan within weeks, a crucial development for Pakistan as it seeks to stabilize its economy and avoid a deeper financial crisis.
