IMF slams tax-free sugar import

Express Tribune

21 hours ago

The International Monetary Fund (IMF) has reacted to a major breach of the $7 billion programme and conveyed its reservations about the government's decision to import 500,000 metric tonne of sugar by waiving taxes, in violation of written commitments.
The development came as sugar prices officially hit Rs200 per kg for the first time in the country's history, according to the Pakistan Bureau of Statistics' (PBS) inflation bulletin released last Friday. Government sources told The Express Tribune that the IMF did not accept Pakistan's plea that the tax-free sugar import was justified due to a food emergency. The Federal Board of Revenue (FBR) had written to the IMF on behalf of the government.
The supply situation tightened due to the government's earlier decision to export 765,000 metric tonnes of sugar.
Sources said the IMF's reaction aligned with the finance ministry's assessment, which had forewarned of the $7 billion programme being "detracted" by two breaches.
Pakistan is now in serious breach of the IMF programme after it violated written commitments not to grant preferential tax treatment or engage in commodity purchases.
The Ministry of Finance, FBR, and IMF did not officially comment on the development. However, officials involved said the IMF had taken exception to the government's move to bypass it when deciding to import sugar, breaching two programme commitments.
This marks the first test for the new IMF Mission Chief to Pakistan, Eva Ghirmai, and how she handles the situation. The government bypassed the IMF and swiftly waived taxes and issued an import tender, a move likely to create further mistrust between both sides, said the sources.
Last week, the federal cabinet approved the import of 500,000 metric tonnes of sugar, waiving nearly all applicable import taxes to mitigate the negative impact of its earlier decision to allow sugar exports. The tax waiver was intended to reduce the imported sugar price by an estimated Rs82 per kilogram.
With all applicable duties and taxes, the import price is estimated at around Rs245 per kg, though the exact price will be known once the government receives bids by this Friday. Federal Minister for National Food Security and Research Rana Tanveer Hussain stated that, due to a food emergency, the federal cabinet approved the import of 500,000 metric tonnes of sugar to stabilise local prices with immediate effect.
Following the cabinet decision, the FBR issued three notifications to completely waive import duties and apply a nominal 0.25% sales tax and withholding tax rate, mainly for record-keeping purposes. The tax waivers apply to both private importers and the Trading Corporation of Pakistan (TCP), in breach of the IMF agreement.
According to the FBR notification, "Pursuant to the Cabinet Decision, the withholding tax under section 148 shall be collected at the rate of 0.25% of the value of commercial import of sugar up to 500,000 tonnes by Commerce Division through TCP or private sector." The sales tax rate was reduced from a cumulative 21% to 0.25%, and duties were fully exempted.
IMF programme documents state, "Do not grant tax amnesties, and do not issue any new preferential tax treatment, including exemptions, zero rating, tax credits, accelerated depreciation allowances, or special rates." The government proceeded with the sugar import despite its commitment to the IMF to phase out federal and provincial price-setting for agricultural commodities by the end of FY2025-26. The TCP has already issued a tender to import 300,000 metric tonnes of sugar, with a bid submission deadline of July 18.
The government also committed that by December 2025, it would review relevant legislation underpinning market interventions and prepare recommendations on addressing issues like market abuse and anti-competitive behaviour through competition policy and less protectionist trade policies, according to sources.
Sources said that after the cabinet waived taxes via circulation of the summary, the finance ministry raised objections with the Prime Minister's Office.
According to insiders, the finance ministry stated that the summary for sugar import was approved by the Cabinet without input from the finance minister. The finance minister, last week, did not respond to a request for comment on whether he raised the issue with the prime minister.
Sources said the ministry informed the PM that the waiver of duties and taxes on sugar imports violated Pakistan's agreement with the IMF. It reiterated that the government had agreed not to issue any new tax exemptions or preferential treatment. The ministry's concern was that these breaches could detract from the IMF programme.
Sources said that, following the IMF's response, the government was evaluating options to manage the situation. These include TCP backing out of the imports entirely and withdrawing the tax waiver for the private sector. However, no final decision has been made.
Sources added that the food minister again met with the Pakistan Sugar Mills Association (PSMA), which assured him it could meet domestic needs by starting the crushing season early.
The government anticipates a sugar shortfall of 535,000 metric tonnes in October–November this year.
The government of Prime Minister Shehbaz Sharif had earlier exported 765,000 metric tonnes of sugar, which pushed local prices from under Rs140 to Rs200 per kg.