Hike of 34% tax revenue target by IMF for FY21 is unrealistic: PBC

May 06, 2020 (MLN): Pakistan Business Council (PBC) alarmed a sharp 34% rise in tax revenues projected by IMF for FY21 will throttle an economy that was barely stabilizing prior to the onset of Covid-19.

An online Zoom session was held between PBC and IMF teams wherein both discussed the macroeconomic indicators and their projections as the COVID-19 related shock has altered the economic outlook.

Talking about its discussion with IMF, PBC pointed as per IMF's tax revenue target, Rs 800 billion would need to be raised in new or higher taxes in the forthcoming budget, battering the economy further before the start of FY21.

It raised the alarm that a 34% hike in tax revenue target set by IMF for FY21 is quite unrealistic as FBR lacks the institutional capacity to broaden the tax base. There is a high risk of disproportionate reliance on existing taxpayers to meet unrealistic targets, PBC said further.

Regarding GDP growth rate, PBC considered Revival in GDP growth in FY21 which IMF projected at 2% would suggest the unlikely scenario.

It further noted that the IMF set the inflation target at 8% for the next fiscal year. PBC assessed that this target needs to be reviewed downward to about 6%, given the demand compression arising from unemployment.

Referring to the interest rate target, PBC identified that IMF projected a Policy Rate of 11% for FY21 which is again higher than where it needs to be soon.

In the discussion, PBC covered the likelihood of lower exports and remittances than forecasted by IMF, hence a higher current account deficit.

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