PAKISTAN: Budget to include heavy tax increases

21 June 1996

Prime Minister Benazir Bhutto has warned that the budget, expected to be announced on 13 June, will include an additional Rs 40,000 million ($1,147 million) in new tax measures. Some Rs 25,000 million ($717 million) of the new tax revenues will come from the widening of a general sales tax on goods and services, at the import and manufacturing stages, but not at the retail stage, economic advisor to the Prime Minister VA Jafarey said on 11 June. Other tax measures are expected to include the introduction of income tax for farmers.

The increased taxation is intended to cut the budget deficit to 4 per cent of gross domestic product (GDP) in order to meet targets agreed with the IMF under the current standby agreement. The budget deficit for 1995/96 is expected to fall short of the target of 4.5 per cent target of GDP. The figure is expected to be 5 per cent, Jafarey said. He blamed the failure to meet the target on tax exemptions, lower tariffs and a poor rate of tax collection. The possibility of privatising tax collection, in order to improve efficiency, is under consideration, said Jafarey.

An IMF spokesmen said that a mission will visit Pakistan in July in order to discuss the disbursement of the third tranche of the $600 million standby credit.

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