Pakistan assures IMF: New tax measures to generate Rs120b

Move aimed at keeping budget deficit at 4 per cent of GDP.

ISLAMABAD:

Pakistan has assured the International Monetary Fund (IMF) that it will levy additional taxes next year including measures announced on March 15 which will generate Rs120 billion and restrict the gap between national income and spending to four per cent of the total size of economy.

The assurance was given during recent talks with the IMF in Dubai after the government expressed its inability to levy the controversial Reformed General Sales Tax. The government has told the IMF that it will restrict the budget deficit to four per cent of gross domestic product (GDP) or Rs856 billion.

The government plans to impose net additional taxes of Rs45 billion from financial year 2011-12, according to sources. The bulk of this money will be generated by further withdrawing sales tax exemptions and a part of it will come from increasing withholding tax on commercial electricity consumers, they added. Rates of customs duties may not be changed.

Sources said a final decision to generate Rs45 billion in additional taxes depends on how the political leadership deals with pressure that is likely to be exerted by various lobbies affected by these measures. This will also determine next year’s revenue collection target.

After the conclusion of talks with IMF, Finance Secretary Dr Waqar Masood had said next year’s revenue target would be Rs1,952 billion – a figure termed “very unrealistic” by economists including Dr Hafiz Pasha.

Sources said the government may fix Rs1,930 billion tax target, as it is highly improbable that Rs1,588 billion would be collected by June this year, which would form the basis for revenue collection next year.

An amount of Rs75 billion is expected to be collected through measures introduced by promulgating Presidential Orders on March 15. However, the government will have to cover these measures in the next budget, as the ordinances will lapse on July 15.

Succumbing to pressure exerted by vested interests, the government is undecided about continuing sales tax on plant and machinery. It is giving an excuse that 17 per cent sales tax on plant and machinery at the import stage may discourage new investment in the country.

However, the Federal Board of Revenue sources said the levy is adjustable for registered businessmen and only unregistered importers are subject to the tax. This is expected to generate Rs19.5 billion during the next fiscal year. They added that even IMF has opposed the move to withdraw the levy.

After abolishing exemptions on sales of fertiliser, tractors, pesticides, garments, leather, carpets, surgical and sports goods, the government has assured the IMF that it will withdraw exemptions from poultry feed, cattle feed, domestic oil and medicines. However, sources said life-saving drugs would remain exempt from 17 per cent GST.

FBR has so far collected Rs1,156 billion in the first 10 months of the current fiscal year. It has to collect Rs153 billion in May and over Rs271 billion in June to reach the target of Rs1,588 billion.

Published in The Express Tribune, May 21^st, 2011.