Islamabad:
The International Monetary Fund (IMF) has once again raised the issue of imposing additional fertilizer taxes and introducing a special tax on the use of pesticides to partially compensate for a deficit in the annual fiscal objective, which the Government has requested to differ until next year.
The global lender has asked the Government to trigger the contingency measure by doubling the federal special tax rate on the 10% fertilizer and introducing a 5% Federal Tax on pesticides, according to government sources involved in negotiations with the IMF. The sources said that during the ongoing discussions, the IMF team observed that the Federal Income Board (FBR) may not reach its objective in at least RS400 billion to RS500 billion, depending on multiple factors.
However, the IMF may not immediately cut the objective or press to cover the entire projected deficit through additional measures. With only two remaining days in the conclusion of the conversations, there is the possibility that the IMF can accept to reduce the objective in the range of RS167 billion to RS240 billion, the sources added. Development occurs at a time when at least 3.3 million land acres are under water in Punjab, and 27 districts, mostly rich in commercial crops, have suffered medium to high losses. The provincial government is finishing an assistance package.
The authorities said the IMF did not press hard after the Government assured him that he would take these measures during the next review if FBR tax collection remains lower than the reviewed estimates.
The problem remains open for discussion, and the final position will be known once the last draft of the memorandum of economic and financial policies (MEFP) is shared, the set of conditions that Pakistan will continue for the next review.
The Government had established a fiscal objective of RS14.13 billion for the FBR, but during the first quarter, the collection fell short at RS198 billion.
The new FBO target could be between RS13.963 billion and RS13.89 billion, according to FBR officials. They said that the review could involve reducing the objective of sales tax at RS240 billion to a little less RS7 billion for the current fiscal year.
The agricultural sector is already fighting after the government abruptly withdrew the agricultural support prices mechanism without prior notice to farmers, said Syed Naveed Qamar, former finance minister under the Popular Party (PPP) of Pakistan. Qamar said that his party would oppose any movement that increases the cost of agricultural inputs, particularly at a time when floods and withdrawal of the price of wheat support have negatively affected the income of farmers. The sector has been dealing with climate change and limited water availability, he added.
Meanwhile, the Sindh government extended on Monday the deadline to present the returns of agricultural income from Sindh before October to 30, according to a notification of the Sindh Income Board. This will be the first income tax declaration that the agricultural community will be presented under the new provincial income tax laws, applied as part of the IMF rescue package of $ 7 billion.
The question of increasing fertilizer and pesticides taxes also arose in June of this year. However, after the opposition of the PPP, Prime Minister Shehbaz Sharif asked the IMF to differ the matter. If the last postponement request of the government is accepted, this will be the second time in three months that the IMF has altered its position on the subject.
However, the IMF renewed approach in the matter raises questions about time, given the severe tension that the agricultural sector already faces. The sector has suffered losses and, as a result, general economic growth will probably remain below the objective.
Against the objective of the Government of 4.2%, the sources said that the IMF has projected that economic growth ranges between 3% and less than 3.5% for the current fiscal year.
The IMF pointed out that recent floods have weighed on perspectives, particularly for the agricultural sector, given the damage to Kharif’s main crops. The lender continues to project economic growth relatively less than medium term.
The sources said that the IMF believes that the effective implementation of economic policies can help the economy strengthen macroeconomic stability, boost external competitiveness and improve the business environment for the private sector, which supports a 4.5%gradual growth collection.
At the time of negotiations for the $ 7 billion rescue package, the federal government had committed to end preferential treatments to reduce distortions. He explicitly told the IMF that “his large -scale interventions in markets for agricultural products, including fertilizers, are no longer suitable for the purpose” to guarantee food security.
The low or zero special tax rate (Fed) in fertilizers and pesticides has described “distortions that suffocate the activity and innovation of the private sector, volatility and monopolization of exacerbated prices, and put fiscal sustainability at risk.”
Both the IMF and the federal government believe that the excessive use of fertilizers by farmers contributes to environmental pollution.
Meanwhile, the Minister of Planning, Ahsan IQBAL, presided on Monday the first meeting of the Committee of the Cabinet of Agriculture, Climate and Flood Emergencies, constituted by the Prime Minister.
The minister emphasized the urgency of supplying canola seeds to farmers in 15 days to take advantage of soil moisture left by floods. “I have organized a 5,000 -acres canola pilot project in Nareowal through corporate sponsorship because we cannot allow ourselves to waste time. This is a time for urgent action, we should not waste it,” he said. IQBAL also established three working groups, which will prepare detailed reports on immediate agricultural relief and seed provision, climate change impacts and resilience strategies.
