By Asif Shahzad

ISLAMABAD, (Reuters) – Pakistan will eliminate most sales tax exemptions so all income levels pay a single 17%. This is part of a series of tightening measures that aims to secure approval for a tranche of $1 billion IMF funding. Officials said Friday.

Officials said that in addition to removing sales tax exemptions of around 300 billion rupees (1.70 billion dollars) per year, a supplementary budget would be introduced next week. This will also reduce development spending. These measures will increase consumer pressure already steeped in galloping inflation, a sliding currency and other problems.

Although the IMF had agreed to restart a $6Billion funding program, they demanded that Pakistan tighten its budget in order for the next tranche of approximately $1 billion.

Shaukat Tarni, the government’s finance adviser, said that IMF has demanded that sales taxes be increased to 17% across the board. This currently represents the highest tax level and is only applied to some products and services. He said that the government will work to help those with lower incomes and other people affected by the tax.

Reporters were told by him that the IMF was not saying you can’t offer relief, but rather they are saying don’t distort tax ratios.

In recent months, Imran Khan has been under pressure due to rising food and energy costs. Rising household bills have also caused anger in the middle class which was his main support base.

Pakistan was in negotiations with IMF over several months to obtain a waiver in terms of a more than two year old bailout package that helped shore up the fragile state’s finances. As per the IMF review that has been pending, which was completed earlier in thisyear, approximately 750million IMF special drawingsrights or about $1 billion would be available. The total amount of disbursements to Pakistan will reach around $3 billion. The IMF approved Pakistan to the 6-billion, 39-month financing programme in July 2019. However, the program was halted earlier this year due to concerns over reforms.

Pakistan’s economy is under pressure. There has been a significant decline in the rupee and inflation, which reached 11.5% last November. This was accompanied by a wider current account deficit, declining foreign reserves, and increased tensions.

In an effort to combat inflationary pressures and to maintain stability, the central banking raised its benchmark rate to 8.75% by 150 basis point last month. ($1 = 176.5000 Pakistani rupees)