The government has asked the International Monetary Fund (IMF) for $7 billion to limit the powers of the Special Investment Facility Council (SIFC) and increase accountability in the operations of the Sovereign Wealth Fund. Promised to make sure. Pakistan has also agreed to phase out all Special Economic Zones (SEZs) over time.
Both the SIFC and the sovereign wealth fund were set up last year with the aim of removing obstacles to economic growth and facilitating the sale of state assets to foreign entities, thus the IMF’s bailout. Pakistan’s dependence on outs was to be reduced.
Local English daily report According to Pakistan has promised the IMF to come up with a plan by the end of this fiscal year to completely eliminate all existing Special Economic Zones privileges by 2035.
This move is expected to have a strong impact on Pakistan’s ambitions, especially the need to implement the second phase of the China Pakistan Economic Corridor (CPEC).
An IMF staff report released on Friday confirmed that the coalition government will introduce a mini-budget if revenues fall by more than one percent of the target.
The mini-budget will include additional taxes on imports of professional service providers, contractors, machinery and raw materials, and increase excise duty on beverages.
The detailed IMF report also revealed that provincial governments are now barred from setting agricultural support prices and providing subsidies.
Additionally, by the end of this month, provinces will need to amend their agricultural income tax laws.
According to the English daily, Pakistan has accepted about 40 terms of the IMF in exchange for seven billion dollars. Many of these reforms are aimed at curbing the financial losses of state-owned enterprises, curbing the elite’s grip on the economy, and ensuring fiscal discipline.
However, some conditions are likely to place undue pressure on the public and may deepen rifts between some institutions as well as between the federal and provincial governments.
These written promises have been made by the Finance Minister Senator Muhammad Aurangzeb on behalf of the Government of Pakistan.
All the terms are contained in the Memorandum on Economic and Fiscal Policies (MEFP), signed by Muhammad Aurangzeb and State Bank of Pakistan Governor Jameel Ahmed.
The IMF report emphasized that progress on the State-Owned Enterprises (SOEs) reform agenda, including the implementation of the SOE Act in February 2023, will facilitate the removal of structural bottlenecks and structural transformation of the economy. Although measures to do so have proved insufficient.
According to the IMF, ‘with regard to the establishment of the Sovereign Wealth Fund and the establishment of the Special Investment Facilitation Council (SIFC), staff have sought to ensure a level playing field regarding the investment environment and reduce governance standards. has highlighted the need to avoid’.
The IMF said these issues remain to be resolved.
In response to the IMF’s concerns, the finance minister has given written assurances to limit SIFC’s powers to tax or encourage investment and has pledged accountability for SIFC’s decisions.
A set of best practices of transparency and accountability will also be established for the operations of SIFC and will ensure that all investments made under SIFC are made in accordance with standard public policies, the government said. Get results from the investment management framework’.
Mini budget
The report further revealed that if Pakistan’s set quarterly targets fall by one percent, the government will bring a mini-budget. The Federal Board of Revenue (FBR) has failed to meet the first quarter target of Rs 90 billion shortfall despite stopping refunds and taking advances. The shortfall was Rs 63 billion more than the permissible limit.
As a result, the government will bring a mini-budget. This will increase the advance income tax on import of machinery by one percent to raise an additional Rs 24 billion. The advance income tax on raw material import of industries will be increased by one percent to collect Rs 42 billion annually and the advance income tax on raw material import of commercial importers will be increased by one percent to collect Rs 12 billion annually.
The government has proposed a one percent increase in withholding tax on supplies to raise Rs 12 billion annually, a one percent increase in withholding tax on services for an additional Rs 6 billion in annual revenue, and a one percent increase in withholding tax on contracts worth another Rs 6 billion. What is the commitment to increase?
The government has also promised to increase excise duty on aerated and sugary drinks by 5% to raise Rs 28 billion annually.
other conditions
The finance minister assured the IM in writing that ‘we will increase the federal excise duty on fertilizers and pesticides by 5%.’ Pakistan will not grant tax amnesties, and will not issue any new preferential tax treatment including exemptions, zero-rating, tax credits, accelerated depreciation allowances, or special rates.
The government will also seek prior approval from Parliament for any expenditure that is not included in the budget or that is in excess of the allocated budget.
The released document confirmed that all five governments were required to sign off on the national finance by September 2024.
According to the written communication, ‘the four provinces have agreed to amend their agricultural income tax systems to be fully aligned with the federal personal income and corporate income tax systems by the end of October 2024, through the necessary legislative changes. But we can be compatible’.
The document added that every province will start taxing agricultural income under the new system from January 1, 2025.
The finance minister pledged with the IMF that ‘we are taking action to phase out federal and provincial government price fixing for agricultural commodities by the end of FY 2026’.
The government will set out its strategy for transition arrangements by the end of September 2024, to set expectations and reduce bottlenecks for the 2025 kharif crop season.
According to another condition, Pakistan will share with IMF staff a report detailing the impact of the federal government’s actions by the end of September. However, in the National Finance Agreement, the dissolution of departments is linked to consensus in the Council of Common Interests.
Governance
Pakistan will amend the Civil Servants Act by February 2025 to ensure that declarations of assets of high-level government officials, including assets of themselves and their family members, are filed digitally and FB be publicly accessible through R, creating a robust framework for
Pakistan will also publish a full governance and corruption assessment report by July 2025. It will also implement an annual inflation adjustment of unconditional cash transfers until January 2025.
Pakistan will also receive parliamentary approval of amendments to the bank resolution and deposit insurance legislation by October 2024, preserving the integrity of the draft legislative amendments by October 2024.
The government will keep under-capitalized private banks under resolution until these banks are fully recapitalized by the end of October 2024.
Pakistan will complete all policy measures required to prepare the two power distribution companies for privatization and concessional transactions by January 2025. The use of captive power in the gas sector will be phased out by January 2025. Pakistan has already increased the gas tariff for domestic electricity generation from Rs 1,200 per mmbtu in October 2023 to Rs 2,750 per mmbtu in February 2024.
Pakistan will also notify the semi-annual gas tariff adjustment by 15 February 2025, and that the gas tariff adjustment will include the cost of imported RLNG.
Sovereign Wealth Fund
Pakistan has promised to amend the Sovereign Wealth Fund Act by December 2024 to adopt appropriate governance mechanisms and safeguards following international standards and good practices.
This will ensure that SOs revert to the governance structure of the Act under the ownership of the Sovereign Wealth Fund (SWF).
According to Pakistan’s commitment, the sovereign wealth fund will be defined as a state-owned entity and the legal amendments will ensure that the privatization or sale of assets and its procurement process are conducted on open, competitive, transparent and non-discriminatory principles. Based on
Members of SWF’s Board and Advisory Committee will be appointed through a transparent, merit-based and participatory process to ensure their professionalism and independence from non-governmental and private influence.
Pakistan will amend Section 50 of the SWF Act to clearly establish that SWF-owned state-owned enterprises are subject to the SOE Act and the SEO Policy and that the SWF’s SO Adequate monitoring system has been agreed upon as a holding entity for any necessary additional amendments to manage and operate the functions of the e-proprietary.
To strengthen fiscal safeguards, Pakistan will ensure that adequate fiscal safeguards are in place, including by requiring that all revenues from SWF operations be channeled directly to the government and SWF. Do not keep And that the assets of the SWF should not be used to provide credit to any public institution.
Implementation of the SWF Act and any other action aimed at preparing the SWF for its operation will be done only after the above reforms are completed.
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