As Pakistan raises taxes to please IMF, many smaller firms may be forced to shut down

Several industries in Pakistan are already in stress after Islamabad unveiled its (Pakistani) Rs 170 billion mini budget to conform to the International Monetary Fund’s demand, a prerequisite to resume its financial assistance package. The country’s beverage industry has already started making attempts to reverse the Shehbaz Sharif’s government’s decision to impose additional excise duty on sugary and aerated drinks.

A US embassy delegation met Tariq Pasha, Special Assistant to Prime Minister and urged him to withdraw the taxes. This could set a precedent for other companies or industry associations to seek relief even as the government remained silent on whether or not it would yield to the demands of the beverage industry.

The small and medium sector enterprises will be the worst affected. A host of them may even be forced to shut down. Thousands of people who were working with the country’s textile firms have already been laid off.

High inflation directly impacts corporate earnings and sentiments, which often leads to downsizing of manpower and salary squeeze. It also pushes up costs of raw materials. Robust economic activities are vital for the recovery of any economy.

The IMF revived the $6 billion loan package late last year but the programme ran into uncertainty after the country’s Finance Minister Ishaq Dar reversed the policies reducing fuel prices.

An analyst told India Narrative that this could lead to serious troubles for Islamabad as companies, both foreign and domestic, may be forced to rechart their business plans.

“It is a very tricky situation. If taxes are not raised, IMF loans may not come and now that taxes are raised, the industries have come under pressure at a time when the country needs to generate more jobs and raise income levels to be able to withstand the surging inflation,” he said.

Amid rising levels of debts, Pakistan was left with no other choice but to seek IMF’s assistance to avoid a default.

However, Pakistan’s Defence Minister Khawaja Asif said that the country has already defaulted.

“You must have heard that Pakistan is going bankrupt or that a default or meltdown is taking place. It (default) has already taken place. We are living in a bankrupt country,” he said, adding that the country’s problems need to be resolved internally and not with the help of the IMF.

The South Asian nation has already taken 22 loan packages in the last 70 years, “yet achieved no lasting solution,” the Pakistan Institute of Development Economics (PIDE) analysis published in 2021 said.

Also read: Pakistanis face prospects of hunger as Sharif bows to IMF, hikes fuel prices