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Business Standard
18-05-2025
- Business
- Business Standard
Tensions with India may derail bailout scheme's goals: IMF warns Pakistan
The International Monetary Fund (IMF) has warned Pakistan ahead of the release of the next tranche of its bailout programme, saying that tensions with India could "heighten risks to the scheme's fiscal, external, and reform goals". In its first review of the over $1 billion bailout programme, the IMF noted the tensions between India and Pakistan following the April 22 Pahalgam terror attack, in which 26 people were killed. The report said that so far, the market reaction in Pakistan had been modest, with the stock market retaining most of its recent gains and spreads widening moderately. "The rising tensions between India and Pakistan, if sustained or deteriorate further, could heighten enterprise risks to the fiscal, external and reform goals of the program. Reputational risks could also come from any perceived lack of evenhanded or if there was a perceived misuse of fund disbursements," the report said. The IMF report places Pakistan's defence allocation for the upcoming fiscal year at PKR 2.414 trillion, reflecting a 12 per cent increase or PKR 252 billion more than the previous year. In contrast, the government has signalled plans to allocate over PKR 2.5 trillion, marking an 18 per cent rise, following the recent escalation with India earlier this month. IMF imposes fresh conditions on Pakistan The IMF also slapped 11 new conditions on Pakistan for the release of the next tranche of its bailout programme. This takes the total conditions imposed on Pakistan to 50. A key condition requires the parliamentary approval of the FY26 budget—projected at PKR 17.6 trillion, including PKR 1.07 trillion for development spending—by the end of June 2025, in line with IMF programme targets. On the provincial side, the four federating units must implement new agricultural income tax laws, supported by digital platforms for taxpayer registration, return processing, and compliance measures, with a deadline of June 2025. The IMF also expects Islamabad to publish a Governance Action Plan, based on findings from the Fund's Governance Diagnostic Assessment, to address persistent governance weaknesses. Pakistan must also unveil a post-2027 financial sector strategy, outlining long-term institutional and regulatory reforms from 2028 onwards. In the energy sector, four conditions have been introduced to ensure cost recovery and reduce circular debt: the rebasing of electricity tariffs by July 1, 2025, a semi-annual gas tariff adjustment by February 15, 2026, legislation to make the captive power levy permanent, and the removal of the PKR 3.21/unit cap on the debt servicing surcharge—currently hindering full cost recovery. The IMF has mandated Pakistan to draft a plan for phasing out incentives related to Special Technology Zones and other industrial parks by 2035, with the reform roadmap due by the end of this year. The Fund also wants the government to introduce legislation in Parliament by July 2025 to lift quantitative restrictions on importing used vehicles, initially for cars less than five years old—expanding the current limit set at three years. IMF loan to Pakistan On May 9, the IMF approved the immediate disbursement of about $1 billion to Pakistan under the ongoing Extended Fund Facility. The global lender said that Pakistan's 37-month EFF was approved on September 25, 2024, and "aims to build resilience and enable sustainable growth", with priorities including entrenching macroeconomic sustainability. India opposed the IMF's extension of fresh loans to Pakistan, saying they could be misused for financing state-sponsored cross-border terrorism. New Delhi also abstained from voting at the crucial IMF meeting.
Express Tribune
26-04-2025
- Business
- Express Tribune
IT firms demand major tax reforms
Listen to article Pakistan's Information Technology (IT) companies have strongly demanded the government to rationalise taxes on the IT sector in order to enhance its exports manifold in the coming years. Muhammad Umair Nizam, Senior Vice Chairman of the Pakistan Software Houses Association (P@SHA), called for a major reduction in the burden of income tax on employees' salaries from the current 35% to a flat 5% in order to facilitate IT companies in maintaining their exports growth. This step, he explained, would help IT companies match the competitiveness of remote workers in the IT sector who are paying a minimal tax rate of just 1% as freelancers. "P@SHA is looking forward to the government granting a 10-year tax holiday to encourage new foreign and domestic investments, the streamlining of foreign exchange regulations, greater facilitation from commercial banks, the removal of anomalies in sales tax, the allocation of dedicated funds for skill development and the acceleration of the operational materialisation of Special Technology Zones (STZs) and IT parks across the country," he said. He stressed that the government should urgently do away with the heavy 10% tax currently imposed on the transaction of debit cards linked to foreign exchange accounts, as this eats up a huge share of the earnings of IT companies and severely impacts their profitability. Highlighting the sector's potential, he said that information technology has now become the fastest-growing export industry of Pakistan, and the country is poised to achieve a record $4 billion in its IT exports for the fiscal year 2025, covering the period from July 2024 to June 2025. Nizam also pointed out that Pakistan is rapidly expanding into new sub-sectors and verticals across various spheres of technology, but expressed concern that conventional regulatory frameworks continue to create bottlenecks due to their inability to adapt to the fast-paced evolution of the global tech industry. "P@SHA's role is to translate the needs and demands of our member companies into policies, incentives, and actions. Whether it's about export taxation, ease of doing business, payroll taxation, international visibility, or digital infrastructure - we take those concerns straight to the power corridors," he added. Mehwish Salman, an award-winning serial entrepreneur and CEO of Datavault Pakistan, stated that the government must allocate a handsome portion of the national budget toward promoting emerging technologies, such as artificial intelligence, cybersecurity, the internet of things, and data engineering, to grow the country's exports and foster greater adaptation of digitisation across various sectors. In this regard, she said the government should continue its capacity-building programmes by partnering with IT companies to arrange boot camps in various cities, aiming to upskill working professionals and bring them up to par with global standards. Salman also stressed that the government should introduce subsidies for female professionals seeking certifications and specialised training, along with scholarships for female students, in order to encourage and significantly increase their contributions. "Through effective industry-academic liaison, we need to upgrade our curriculum based on emerging technologies at both private and public sector universities to meet the increasing demand for highly skilled human resources in the country's IT sector," she said. She further suggested that the applications of AI tools and coding should be introduced to students at the secondary school level, which would promote a culture of research, development, and innovation among the younger generation. Meanwhile, former Chairman of P@SHA, Muhammad Zohaib Khan, said that IT remains the only industry in Pakistan with an industry trade surplus in the vicinity of 75%, and pointed out that it is the only sector that can grow at an exponential rate, develop a skilled workforce, create employment opportunities rapidly, help curtail the country's growing trade deficit, and keep the current and external accounts healthy.
