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Feb 20, 2023

Most countries agreed on a major tax reform

FA News Desk

The international tax system shaped by the League of Nations in April 1923 has come under intense pressure in recent years.

Globalization, digitalization, and tax competition have made it increasingly hard for countries to raise revenue from multinational companies in an effective, fair and efficient manner.

Following a decade of debate, 138 countries recently agreed to the first major overhaul of the international tax system in a century, stated in International Monetary Fund (IMF) reports.

The IMF paper assesses the reform and finds that it is a major step in the right direction. But to reap its benefits countries need to implement it, with the optimal policy response depending on each country’s circumstances. Reform efforts at both international and domestic levels should continue, not least so that poorer countries can raise more revenue to meet their development needs, it said.

The reform was agreed in 2021 by the members of the Organization for Economic-Cooperation and Development/Group of Twenty Inclusive Framework—a body with now 142 members tasked to address international tax avoidance by multinational companies and deal with the tax challenges arising from digitalization of the economy.

The global tax agreement is an important step in the right direction, but it is not yet operational. While monitoring and evaluation are critical and further reforms likely, the most important next step is for countries to implement it swiftly.

Meanwhile, the IMF has asked the Pakistani government to collect taxes from the rich. According to media reports, IMF Managing Director Kristalina Georgieva, in an interview with the German institution, urged Pakistan to collect taxes from the rich and end subsidies, saying that the need for high earners in the public and private sectors to contribute.

Yes, rich people in Pakistan should not benefit from subsidies, subsidies should be transferred only to those who really need it, she said.

The IMF is very clear that only the poor should benefit from the subsidy and want the poor of Pakistan should be protected and provided their basic needs to run the country, not debt restructuring, it said.