ISLAMABAD, Jan 13 (Reuters) - Pakistan's parliament passed a mid-year budget on Thursday that will end exemptions on sales tax as part of fiscal tightening and a law to grant its central bank greater autonomy to win funding from the International Monetary Fund (IMF), Finance Minister Shaukat Tarin said.
The IMF approval is crucial for the South Asian country of 220 million, which is struggling with external and current account deficits, a depreciating currency, struggling foreign reserves and rising inflation.
Ending the tax exemptions would raise 343 billion rupees ($1.93 billion), Tarin said in proceedings of the house after parliamentarians from Prime Minister Imran Khan's party and his allies voted in favour of the finance bill.
Opposition party leaders in parliament said the supplementary budget will trigger a new wave of inflation, which already stands at 12.3%, but Tarin rejected that.
Tarin said the tax was mostly applicable to luxury imported products like cellphones and cars, adding that tax exemptions for the daily-use items like bakery products, formula milk and solar panels would stay.
Surging food and energy prices have put Khan under increasing pressure in recent months as household bills have caused growing anger among the middle classes, his main base of support.
The central bank chief, however, has said Pakistan's economy has the capacity and financial cushion to ride out rising external account pressures.
The IMF has made further budgetary tightening a condition for the revival of a stalled $6 billion funding programme and central bank autonomy before the next tranche could be approved.
Islamabad will also be raising fuel prices over the next several months under the IMF conditions.
The IMF board was due to meet on Jan. 12 to approve the tranche, but Pakistan had requested a delay until Islamabad met the IMF conditions.
The parliament also passed a separate law to give the central bank greater autonomy, including independent powers to control price stability, monetary policy decisions and a guaranteed tenure for its governor. (Reporting by Asif Shahzad Editing by Alex Richardson, Frances Kerry and Jonathan Oatis)
