Don't raise tax rates, expand tax net. It will also help arrest inflation: Citibank

Don't raise tax rates, expand tax net. It will also help arrest inflation: Citibank


Says State Bank of Pakistan will start interest rate cuts next month

  • Hopes volume of next IMF programme will be $8bn for a four-year period
  • Predicts announcement about Saudi investment coming soon
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ISLAMABAD (Dunya News/Web Desk) – Pakistan should focus on expanding tax net instead of raising the tax rates, says the Citigroup, as the move will also help curb inflation – a suggestion that comes at a time when the International Monetary Fund (IMF) is again pressing the government hard to go for subsidy cuts and hiking energy tariffs.

Read more: Power basic tariff hike is one of the IMF demands

The suggestion comes as the tax-to-GDP ratio in Pakistan is just around 9 per cent – one of the worst in the world – and the incumbent government has repeated vowed to increase the ratio to 15pc in next four to five years.

In fact, the Citibank has endorsed the viewpoint that increasing direct or indirect taxes only fuels inflation by increasing the cost of doing business as well as the cost of living as being experienced in the country.

In a latest report, the Citibank has also predicted that the size of a new IMF programme sought by Pakistan will be $8 billion covering a period of four years.

The forecast shows that Islamabad is set to get what it wants – a bigger and longer package to bring stability to a fragile economy and ensure introduction of long-term policies. It was Finance Minister Muhammad Aurangzeb who had first expressed the desire for such a deal.

There is also a good news for industrialists and other businesses as the Citibank has predicted that the State Bank of Pakistan (SBP) will start the rate cut cycle next month – a scenario for which the market has been clamouring for months.

Read more: KSE-100 reaches a new high amid rate cut hopes

In fact, there has been a strong opposition to the interest hikes that led to the current level of 22pc – a record in Pakistan’s history – with an argument that the rate hikes would paralyse the economy and it has actually happened.

The SBP had last increased the interest rates to 22pc in June last year and decided to maintain the same since then despite a visible decline in inflation.

With the consumer price index (CPI) dipping to 17.6pc in April – a trend witnessed for the fourth consecutive months, Aurangzeb too had hinted last week that the rate cuts would be introduced in the coming months.

The next meeting of the central bank’s Monetary Policy Committee (MPC) is scheduled for June 10, with the Citibank saying that the SBP would have a clear vision before making the decision.

As far as foreign investment is concerned, it is mentioned in the report that a decision about the Saudi investment would be announced soon.

Earlier, a delegation of investors and businessmen from Saudi Arabia visited Pakistan, expressing their interest in a diverse set of fields, ranging from energy and minerals to human resources and agriculture.

Now it is expected that Crown Prince Mohammed bin Salman will visit in the coming weeks and the two countries are in touch to final the dates for this purpose.