In an ironic twist of fate, Pakistan’s economic tragicomedy continues. A nation so rich in resources now finds itself yielding to the demands put forward by the international monetary watchdogs whose very economic dictums that were once meant to improve the lives of Pakistani nationals have only succeeded in creating a financial train wreck. Pakistan finds itself in tango with the IMF as it once again waltzes to the tune of structural adjustments given the recent approval of the IMF tranche of $1.1 billion. Despite the fact that PM Shehbaz Sharif lauds this development as progress for the nation and hails it a success story for the newly elected government, they have no choice but to give in to these austere measures while by default the salaried class is the one who bears the burden of this cycle of economic debt and pillage.
Once branded as the ‘Asian tiger’ of the 1960s, Pakistan has since continued to thrive in its cycle of economic lows over the past 50 years. These economic crunches are often attributed to internal political instability, global external shocks and natural disasters. However, a major factor also includes over-reliance on financial watchdogs like the IMF and its loan packages as Pakistan’s debt burden rises given its inability to pay back its outstanding liabilities. Thus, debt rollovers become the only possibility for economic survival against a life sentence that spells ‘default’ but to what extent?
The weight of austerity measures is choking the already struggling salaried class. This is seen given that in the year 2023 alone, IMF’s two-week review on Pakistan’s tax policies recommended that on the one hand, tax slabs should be reduced for the salaried class from seven to four but on the other hand an 18 per cent increase in the existing sales tax must be implemented on most essential goods. Had this been implemented, the tax burden would have spelt difficulty for this already struggling demography who already pays high returns in the form of income tax. Simultaneously, the ongoing inflation within the nation makes affordability an impossible reality for the salaried class. Statistics shown by the Federal Board of Revenue (FBR) highlights that one of the greatest contributing bases of income tax are the salaried class from whom Rs. 264 billion is collected annually while tax relief and evasion is more pronounced in the agriculture and real-estate sectors. Hence, it can be seen as to why a preferential sales tax increase that was recommended not only by the IMF but also by the World Bank resulted in much opposition from the salaried class till it was shelved.
While these taxes may have been rebuffed once but circumstances may change. The new government must prove its financial performance. Not only has it been critical of past governments performance but its own legitimacy stands at stake. Thus, a second rebuff will seem unlikely in such desperate times. Moreso, IMF’s recent demand to milk the salaried class does not spell ease for the labour class. Not only does it call for maintaining the current status quo on the income tax exemption threshold that covers those earning minimum salaries of Rs. 50,000 monthly but it has also called for lowering the existing limit for the highest taxable income. Hence, those earning up to Rs. 100,000 monthly will see no relief or easing in purchasing power if this was to become a reality. However this all boils down to the incumbent government’s ability to resist such demands; will they give into the demands of the global lender or to the national buyers clamour below?
Obtaining the IMF tranche has been crucial in bolstering financial prospects for Pakistan and inviting investor confidence. Hence, one can already predict that the new IMF programme will further come with a challenging set of pre-conditions besides lowering taxable limits especially in the form of higher electricity, gas and petroleum prices which the majority of the 250 million population needs for basic survival. Lets not forget that while the IMF may have once denied their 2023 statements on implementing an increase in salary taxes under government negotiations, recent statements prove otherwise.
The existing tax rates for the average salary man are still subsequently high despite the fact that in FY-2023 alone, their contribution to the national exchequer crossed Rs. 300 billion. The burden of existing tax payables is expected to rise for the helpless majority. Even the annual cushion of remittances ranging up to $30 billion has been a tried and tested but failed formula since this alternate method not only fails to make up for payables due but also fails to cover the import-export trade imbalance. This is because the rupee continues to depreciate monthly rather than annually making the value of remittances redundant in the long run. Not to add fuel to the fire but the fact that even prior to the approval of the 2024 IMF tranche, the government had increased the petroleum prices a second time in the month of April already harkens to gloom for what is to follow for the struggling proletariat. If the IMF demands are to be endorsed, this will have severe implications for the salaried class who is already struggling under the weight of high-income taxes, fuel, and food costs.
Some means to tackle this predicament includes preventing tax evasion among the more privileged class and industries such as business, real-estate and agriculture which will need to translate into further broadening of the tax base by bringing traditionally under-taxed domains under the tax safety net. While wholesale and retail industries face high taxes, mass tax evasions also persist. A wealth tax should be in order as practiced successfully in states like Argentine but more so tax exemptions should be monitored – not just for our privileged nationals but also foreign nationals and agents who work for years without paying any taxes on their hefty salaries. Interestingly, while IMF recommends these reforms, it fails to consider salaried members of its own institutions who are exempt from the tax blanket. Many of these inconsistencies need to be addressed if we expect the brunt of taxes not to fall on the shoulders of the voiceless majority while becoming a tool in the hands of the tyrannical minority.
Thus, one must remember that the labour force is the economic backbone of our society. Where is the justice when members of our economic backbone are forced to bear the brunt of fiscal policies with no promise of fair return? The shrinking middle and salaried class who are unable to withstand the financial strain created by the wayward policies of self-proclaimed political experts, has become a harsh reality. This paints a callous picture whereby economic pundits engage in self-serving agendas and singlehandedly deem what is best in the name of financial interest and national progress. Civil relief has become a privilege as poltical and financial lobbyists argue for what they deem the financial way forward while the voice of the salaried man is relegated to the back as he struggles just to make ends meet under tax burdens that have checkered his savings and his comfort.
The writer is our Editorial Assistant and political economy, international relations analyst.
