IMF questions levy of duties, weak tax regime

Expresses concern over govt policy of using regulatory duties as easy source of revenue

Shahbaz Rana December 08, 2017
PHOTO: Reuters

ISLAMABAD: The International Monetary Fund on Thursday questioned Pakistan’s decision to impose heavy regulatory duty on imports and a weak tax regime that could not capture the full tax potential of the real estate sector.

The visiting delegation of the IMF was also concerned about the low number of filing of income tax returns despite giving numerous extensions in the last date, said sources in the Federal Board of Revenue (FBR).

The IMF’s technical team held a meeting in the FBR a day after its senior delegation visited the FBR headquarters. It was the third day of the Pakistan-IMF talks that are going on under the umbrella of Post-Programme Monitoring after the expiry of $6.2 billion package.

The global lender questioned the policy of using the regulatory duty as an easy source of revenue generation amid growing public outcry against the move. The sources said the IMF’s main concern was about the implications of regulatory duties.

The IMF was informed that during the past five months, the government twice imposed the regulatory duty that will give it additional revenue of at least Rs42 billion.

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Under the guise of curbing imports of the non-essential items, the federal government imposed massive regulatory duties on both essential and non-essential items.

The commerce ministry on Thursday distanced itself from the decision of imposing the regulatory duty on essential items such as industrial raw materials.

The original purpose was to discourage imports of luxury goods in order to restrict the growing import bill that surged to $53 billion during the last fiscal year. However, FBR’s documents showed that the total import value of the goods that have been targeted was only $820 million in the July-September quarter.

If the imports are made at this pace, the total value of the goods for the entire fiscal year will not be more than $3.3 billion.

During July-November period, the FBR collected Rs230 billion on account of customs duty, which was Rs52 billion or 29% higher than the comparative period of the last fiscal year.

The share of customs duty in the total revenue generation of Rs1.305 trillion in the first five months was 17.6%.

Historically, the share of customs duty in the total tax collection used to be around 10%, which is constantly on the rise after the PML-N government made it a source of easy revenue generation.

The IMF was informed that the latest phase of regulatory duty would generate extra revenue of Rs22 billion and that the additional duty would not breach the commitments given to the World Trade Organisation.

The IMF also questioned whether the commerce ministry was fully on board. The FBR informed that there was convergence of views with the ministry on most of the issues. The sources said the IMF was not fully satisfied on this account and would meet the commerce ministry to get an update.

AML drive

The IMF delegation was also briefed about a drive against money laundering. The fund was informed that the FBR received about 475 suspicious transaction alerts from the Financial Monitoring Unit.

There were 240 alerts received by the Inland Revenues and another 235 by the Custom Intelligence. So far, the Inland Revenues Intelligence has disposed of about 30 alerts and recovered Rs8 billion taxes. The Customs intelligence disposed off about 100 alerts.

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Realty Sector

The IMF also highlighted the issue of low revenue collection from the realty sector, said the sources. Under political compulsions, the federal government has postponed the planned 30% increase in property valuation rates.

The increase was due with effect from July 2017. But the FBR officials tried to satisfy the IMF and claimed that the collection from the real estate sector was inching up after imposition of withholding tax and increase in rates.

The IMF team got an update on filing of returns that stood at only one million filers after four extensions. The original date for filing returns was September this year. However, the FBR assured that the number would pick gradually and might increase to 1.4 million filers.


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