KARACHI: Pakistan signed an agreement with McKinsey and Company on Friday for the digitalization of its tax system, the finance ministry said, as the South Asian nation strives to deliver reforms amid talks with the International Monetary Fund for a new bailout loan.
Among reforms the IMF will likely push for a new package, like the last two packages, are strengthening public finances including through gradual fiscal consolidation, broadening the existing tax base, improving tax administration, and debt sustainability.
In a media brief in December 2023, Pakistan’s main tax collection agency, the Federal Board of Revenue (FBR), said the country had a “very narrow tax base” of around 5.2 million people in 2022, out of a population of 240 million people. The FBR said it plans to add 1.5 million new taxpayers to the existing base during the current fiscal year.
A high-level meeting was held at the FBR headquarters on Friday, following the signing of the contract with the global consulting firm, McKinsey and Company. The meeting was attended by officials from the ministry of finance, FBR, McKinsey and Karandaaz, a not-for-profit company promoting access to finance for small and medium sized enterprises and financial inclusion for individuals.
“The digitalization of the tax system is a pivotal step toward modernizing tax collection which will enhance transparency and revenue growth,” the finance division said in a statement.
“Digital transformation is a key priority for the government, and this collaboration [with McKinsey] underscores the government’s commitment to improving tax collection for promoting sustained economic growth. We look forward to seeing the positive impact of this initiative on Pakistan’s economy,” Finance Minister Muhammad Aurangzeb was quoted as saying in the statement.
FBR Chairman Malik Amjed Zubair Tiwana said FBR was committed to enhancing revenue collection by leveraging technology to modernize its operations.
“This project [with McKinsey] is a significant step toward achieving FBR’s goals of transparency and efficiency to better serve the people of Pakistan,” Tiwana added.
With a chronic balance of payment crisis, Pakistan needs $24 billion in payments for debt and interest servicing in the next fiscal year starting July 1 — three times more than its central bank’s foreign currency reserves.
The South Asian nation is seeking yet another long-term, larger IMF loan, with finance minister Aurangzeb saying Islamabad could secure a staff-level agreement on the new program by early July.
If successful, this would be the 25th IMF bailout for Pakistan.
The IMF-led structural reforms require Pakistan to raise its tax to GDP ratio, stop losses in state-owned enterprise and manage its energy sector losses which run into trillions of rupees.
Pakistan’s finance ministry expects the economy to grow by 2.6 percent in the current fiscal year ending June, while average inflation is projected to stand at 24 percent, down from 29.2 percent in fiscal year 2023/2024.
Inflation soared to a record high of 38 percent last May but eased to 17.3 percent this April after staying above 20 percent for almost two years