The upcoming 2024-25 federal budget of Pakistan is set to undergo significant changes, driven by the International Monetary Fund (IMF)’s directives. The IMF has urged Pakistan to further reduce sales tax exemptions to secure a new loan, which is expected to impact inflation and economic policy. Prices of key staples like milk, tea, sugar, rice, flour, and packed milk are likely to rise as the IMF recommends a 5-10% sales tax on sectors previously zero-rated. This broadening of the tax base could increase household expenses and increase inflation. The government is also considering imposing sales tax on tractors and pesticides, currently exempt under the Sixth Schedule of the Sales Tax Act. This could raise agricultural input costs, impacting food prices and the farming community. Budget proposals also suggest a phased elimination of sales and income tax exemptions, potentially increasing prices in the short term as exemptions are rolled back to broaden the fiscal base.
The IMF has also called for a reduction in subsidies to export sectors and a phased removal of import restrictions. While the Ministry of Finance agrees to reduce import duties, the Ministry of Commerce emphasizes protecting local industries, highlighting the need to balance fiscal reform with economic stability.
Overall, the IMF’s influence on Pakistan’s 2024-25 budget highlights the challenge of balancing international financial obligations with domestic economic realities. Reducing tax exemptions and introducing new taxes are likely to drive up inflation, making it essential for Pakistan to navigate these changes carefully to avoid overburdening vulnerable populations.
