Great News: Pakistan to end sales tax exemptions after IMF talks

Great News: Pakistan to end sales tax exemptions after IMF talks

KARACHI/DUBAI: Pakistan will end exemptions to a retail sales tax, an official source involved in talks with the International Monetary Fund said on Tuesday, adding that the discussions in Dubai went smoothly.

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Officials from Pakistan, which has been under an IMF programme since 2008, began talks with the IMF last week over targets for the fiscal year that starts on July 1. The meetings were moved to Dubai after Osama bin Laden’s death because of security fears.

“We plan to remove the existing exemptions,” said the source, who requested anonymity.

Those exemptions are mainly on certain foods, including dairy products. In March, Pakistan removed exemptions on items used in agriculture, such as fertilisers and pesticides.

The measures are due to be announced on May 28 when the budget for 2011/12 is unveiled. Pakistan is due to meet IMF officials again in July, when the new measures’ performance will be reviewed.
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Pakistan’s tax-to-GDP ratio is around 10 per cent — one of the lowest in the world — and the IMF has asked Pakistan to increase that, though no specific target has been set. The low ratio and slow implementation of fiscal reforms has stalled the bailout programme since last August.

Pakistan turned to IMF in November 2008 for an $11 billion bailout, which is due to end in September.

The budget deficit for the first nine months of the current fiscal year was 4.5 per cent of GDP. The government has said it aims to keep the deficit to less than 5.5 per cent of GDP for the year, but analysts doubt that can be achieved.

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