IMF Advises Pakistan to Raise GST Rate to Fund Development Projects
The International Monetary Fund (IMF) has rejected Pakistan’s proposal to impose a 1 percent water storage cess on all taxable goods to fund mega dam projects, and instead advised raising the 18 percent general sales tax rate if more development funding is needed.
The government planned to levy the cess to finance the Diamer-Bhasha, Mohmand, and a proposed Chenab dam.
The IMF raised legal, governance, and fiscal flexibility concerns and opposed handing revenue control to WAPDA, reported Express Tribune.
The Fund reiterated that any additional funding should come either by reallocating within the Rs. 1 trillion development funds or increasing the sales tax rate.
Revised estimates put the Diamer-Bhasha dam cost at over Rs. 1.1 trillion, up from Rs. 479 billion.
Rs. 365 billion is still needed even on the original estimate, but only Rs. 25 billion is allocated this year. Mohmand dam, originally approved at Rs. 310 billion, needs at least Rs. 173 billion more, with only Rs. 35.7 billion allocated.
The proposed Chenab dam is expected to cost Rs. 220 billion. Combined, these projects require Rs. 1.35 trillion in additional funding.
As an alternative to new taxes, the government may amend the GIDC law to redirect over Rs. 400 billion in unspent collections toward dam construction.
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