IMF demands 18% GST on petroleum products

Negotiations between Pakistan and the International Monetary Fund (IMF) on a new loan program are expected to conclude today, with the possibility of the IMF mission departing tonight without reaching a staff-level agreement. Sources close to the negotiations revealed that the IMF has set several pre-conditions that Pakistan must fulfil before a staff-level agreement can be reached. These conditions include the implementation of new taxes, an increase in electricity and gas tariffs, and comprehensive reforms in the energy sector. One of the key demands from the IMF is the imposition of an 18% General Sales Tax (GST) on petroleum products. However, the government is considering an alternative approach by imposing a carbon levy on petroleum instead of the GST next year. The negotiations have been particularly challenging, with further discussions set to take place today between the IMF mission, Finance Ministry, and Federal Board of Revenue (FBR) officials. The outcome of these talks will be crucial in determining whether a new bailout package can be secured. Sources indicate that the government is already charging a petroleum levy of Rs60 per litre on petroleum products. It is estimated that this levy will generate Rs2,295 billion in revenue over the next two years, with Rs1,080 billion expected in the next financial year alone. The revenue from the petroleum levy is projected to increase to Rs1,215 billion in the following year. Despite the intense negotiations, it appears that a new bailout package with the IMF is likely to be renegotiated after the new budget is presented in accordance with IMF conditions. This new budget is expected to be presented as per IMF conditions, potentially paving the way for a future agreement. A day ago, while the policy-level talks between Pakistan and the IMF were still underway, the focus was on crucial economic reforms, particularly in the gas sector. The discussions included a comprehensive review of tariff adjustments, measures to reduce revolving debt, and broader energy sector reforms. A significant increase in gas tariffs was likely to be implemented from August, impacting various sectors, including domestic consumers, fertilizer production, CNG stations, and the cement industry. The proposed plan, which had been shared with the IMF, suggested a substantial hike in gas bills ranging from Rs100 to Rs400 for both protected and non-protected customers. However, the plan exempts commercial roti tandoors from any rate increases, recognizing their essential role in providing affordable food. To address the persistent issue of circular debt in the gas sector, three different strategies have been presented to the IMF. These proposals include specific increases in gas rates for fertilizer factories.