IMF wants Pakistan to mobilise revenue from untapped tax bases

• IMF mission concludes Pakistan visit from November 12-15.
• It says encouraged by authorities' commitment to reforms.
• Next mission for first EFF review expected in first quarter of 2025.

ISLAMABAD: The International Monetary Fund (IMF) has urged Pakistan to broaden its tax base by targeting untapped revenue sources, as the country grapples with challenges in expanding its tax collection.

The statement from the IMF came as its mission — led by Nathan Porter — concluded a staff visit to Pakistan from November 12 to 15, during which they reviewed the country's economic progress.

The IMF mission also met senior officials from federal and provincial governments and the State Bank of Pakistan, as well as representatives from the private sector, the Fund's statement said.

The Fund said the staff visits are standard practice for countries with semi-annual programme reviews and aim to engage with the authorities and other stakeholders on the country's economic developments and policies and the status of planned reforms.

Since the visit was not anticipated, there were reports that the global lender's visit would mean that the federal government would have to roll out a mini-budget; however, reports now suggest that such a move would not occur.

"We had constructive discussions with the authorities on their economic policy and reform efforts to reduce vulnerabilities and lay the basis for stronger and sustainable growth," Porter said in a statement at the end of the visit.

The official added that the visiting delegation and the Pakistani authorities agreed on the need to continue prudent fiscal and monetary policies and revenue mobilisation from untapped tax bases, while transferring greater social and development responsibilities to provinces.

In addition, he said, structural energy reforms and constructive efforts are critical to restore the sector’s viability.

Porter further stated that Pakistan should take steps to decrease state intervention in the economy and enhance competition, which will help foster the development of a dynamic private sector.

"Strong program[me] implementation can create a more prosperous and more inclusive Pakistan, improving living standards for all Pakistanis."

The IMF, meanwhile, said it was encouraged by the Pakistani authorities' reaffirmed commitment to the economic reforms supported by the 2024 Extended Fund Facility (EFF).

The next mission associated with the first EFF review is expected in the first quarter of 2025.

'Competitive energy sector market'

Dr Khaqan Najeeb, former Advisor to the Ministry of Finance, while commenting on the development, said that the IMF's visit was an engagement for stock-taking of the first quarter's quantitative results and ongoing structural benchmarks for reforms.

"The preliminary findings highlight the work needed on the perennial issues of broadening the tax base in 3 areas (agri income tax, retail and real estate) plagued with substantive tax gaps, and the need for devolution of finances to the provinces as envisaged in line with the 18th amendment," he said. 

Dr Khaqan stressed that the energy sector’s restructuring beyond pricing changes remains critical, coupled with a reduced footprint of the state, something which the country has found hard to do. 

"The need for a competitive energy sector market has been an ongoing effort for years and has been emphasised by IMF yet again. 

"The IMF engagement also highlights the importance of Pakistans' fiscal consolidation and external buffers for sustaining macro stability," Khaqan said.

The engagement may help ensure Pakistan authorities stay on course for meeting targets of first review in 1st quarter of 2025, he added.