The Seventh Review of Pakistan $6 billion Extended Fund Facility from the International Monetary Fund (IMF) has become so contentious that there is the beginning of talk of clubbing it with the Eighth Review. The reason for this is the IMF’s insistence that the endIng of income tax exemptions take place. The IMF may well be merely playing for time, and waiting for the conclusion of the no-confidence motion, so that it does not end up concluding an agreement with a government that loses office. Though the IMF package is said to be behind much of the economic distress which has given a fillip to the motion, the opposition has been careful not to target the package in its rhetoric, perhaps because it knows that even after the conclusion of this package, Pakistan will have to ask for a fresh package. And it might be forming the government.
At this stage, it is not likely that imposing fresh income tax burdens will change a public opinion shaped by the subsidies given to power and fuel. The IMF is being strict on the income tax precisely because of the subsidies, even though the Finance Ministry has explained how the subsidy is to be financed.
Perhaps the time has come where the government should consider whether it wants to give the subsidy or avoid any increase in the income tax. The subsidy of price rises seems impossible to hold, and already fuel adjustment charges have led to what amounts to a restoration of the previous power price. The desire to keep power and fuel prices down might be laudable, but as long as one does not influence world markets, one’s prices must be in line. The government would find that its review would go much more smoothly if it was to abandon the promised subsidy, while simultaneously its hand would be much stronger in arguing against the income tax increase, even though it had signed on to it at the time of accepting the package.​
Source: Published in Pakistan Today