Pakistan’s cabinet on Thursday approved a supplementary budget which plans to end exemptions on sales tax and levy new duties as part of fiscal tightening measures aimed at winning funding from the International Monetary Fund (IMF).
The IMF approval is also a pivotal endorsement for Pakistan‘s economy which is struggling with external and current account deficits, a depreciating currency, struggling foreign reserves and rising inflation.
The IMF agreed last month to revive a stalled $6 billion funding programme but demanded further budgetary tightening from Pakistan before the next tranche could be approved.
The IMF board meets on Jan. 12 to approve the tranche.
The cabinet endorsement of the mid-year finance bill comes hours before parliament convenes to pass the budget. Prime Minister Imran Khan’s government will need its allies’ support in parliament to win a simple majority.
“The Cabinet has approved the finance bill,” the information minister, Fawad Chaudhry, said in a tweet. “Now, this bill will be presented in the parliament.”
The government aims to raise billions of rupees by withdrawing the sales tax exemptions so that all sectors pay a uniform 17%, levy new duties and revise tax collection target, officials said.
Finance Minister Shaukat Tarin said earlier this month that the IMF had demanded a uniform 17% sales tax across the board, which currently is the highest level, which isn’t applicable to all goods and services.
Surging food and energy prices have put Khan under increasing pressure in recent months as household bills have caused growing anger among the middle classes, which had provided his government’s main support base.
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