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Pakistan faces fresh pressure on taxes for IMF loan

Pakistan is coming under more pressure in talks with the International Monetary Fund to implement a reformed general sales tax as Islamabad attempts to secure the sixth tranche of an $11-billion emergency loan that has kept its economy afloat.

world Updated: Nov 04, 2010 15:30 IST

Pakistan is coming under more pressure in talks with the International Monetary Fund (IMF) to implement a reformed general sales tax as Islamabad attempts to secure the sixth tranche of an $11-billion emergency loan that has kept its economy afloat.

President Asif Ali Zardari's weak government needs all the financial help it can get, especially after summer floods caused nearly $10 billion in losses for the US ally.

But securing funds from the IMF would mean taking unpopular decisions such as raising tariffs to help generate funds for the power sector and broadening the tax base.

Public frustrations already run high with a government critics say is corrupt and ineffective in dealing with crippling power cuts, a Taliban insurgency and deep poverty.

IMF and Pakistani officials are holding talks in Islamabad on the possible release of the sixth tranche of the loan agreed in November, 2008.

"It was always the case, that the sixth tranche would be on the case of progress on RGST (Reformed General Sales Tax)," said a government source, when asked if there were any obstacles in the talks.

Pakistan said in June it would replace its general sales tax (GST) by the RGST by October 1, but that deadline has slipped to December 1.

Another government source familiar with the negotiations said that this week that the government was in a position to show progress on some issues of concern to the IMF and a bill on the RSGT would be introduced in parliament soon.

Talks on policy-level issues were expected to resume on Thursday.

The IMF mission is expected to stay in Pakistan until Friday and then return to Washington to present its findings on the country to its board, which will have final say on the tranche.

Pakistan has also agreed to raise electricity tariffs by around 2 percent a month, according to official sources, to try to eliminate its spending of $2 billion annually on power subsidies.

The last IMF review was completed in May and the review for the release of the sixth tranche has been delayed since August over several issues, such as an increase in power tariffs and the implementation of the RGST.