According to a Business Recorder exclusive, the total cost of exemptions and special tax treatments to the taxpayers was a whopping 680 billion rupees in the current fiscal year while in 2017-18, the amount was 540 billion rupees. This is a sizeable amount and would no doubt go a long way in meeting the International Monetary Fund's (IMF's) 'prior' condition for the budget to "aim for a primary deficit of 0.6 percent of GDP supported by tax policy revenue mobilisation measures to eliminate exemptions, curtail special treatments for taxation and improve tax administration."
While ironically Adviser to the Prime Minister on Finance Hafeez Sheikh has not shared the details of the staff-level agreement with the public who would in effect be paying the price of the deal, and he has reportedly not even shared it with members of the Cabinet, yet informed sources indicate that the IMF has insisted on 800 billion rupee additional revenue generation in 2019-20 budget. In other words, if the government ends all exemptions and special treatments it would meet 85 percent of IMF's revenue requirements. If the government decides to meet only 50 percent of the IMF revenue generation target from eliminating exemptions and curtailing special treatments then a reduction of 400 billion rupees (or about 59 percent of the total 680 billion rupees) would ensure that the government continues to extend special treatment/exemptions to critical industries to ensure that they realise their full potential for exports as well as placing a much lower burden on the general public through raising taxes.
However what is extremely important in this context are the prospective foreign investors to Pakistan from friendly countries - Saudi Arabia, the United Arab Emirates and China (under the ongoing China Pakistan Economic Corridor projects) who may have been offered both exemptions and special treatments not only in order to lure them to invest in Pakistan but also as a means of acknowledging their critical 10.2 billion dollar loans to Pakistan in the current fiscal year - 3 billion dollars each from the two Arab countries and 4.2 billion dollars from China. It is unclear what the terms and conditions agreed by the Khan administration in this regard were; however one would have to assume that these details would be shared with the IMF, if they haven't already, and an agreement reached between Dr Hafeez Sheikh and the Fund.
In this context, it is relevant to note that Pakistan was on an Extended Fund Facility programme between 2013 and 2016 and yet in 2014-15 fiscal year total tax exemptions/special treatments amounted to 665 billion rupees, at a time when exports were not a source of concern and industrial output was increasing, while in 2015-16 the figure declined to 394.5 billion rupees. Again a lack of transparency with respect to the staff-level agreement is galling as those who would have to pay the cost of the agreement, in actual terms through higher taxes, are not being taken into confidence.
Dr Hafeez Sheikh recently stated that he cannot share the details of the staff-level agreement until and unless the EFF is approved by the IMF Board of Directors. One wonders if he is aware of the fact that once the Fund Board approves the package the IMF, as per its own transparency and accountability considerations, would upload it on its website, including the Letter of Intent signed by Adviser and the Governor State Bank of Pakistan committing to the implementation of detailed time bound structural benchmarks on behalf of the Khan administration. True that a country can opt to abandon the programme at any time after its implementation begins, and Pakistani governments have been known to do so, yet pulling out from a programme would depend on the country's economic fundamentals and that sadly are not expected to improve sufficiently for the next three to four years.