IMF proposes Rs575 billion new taxes in next budget

Revenue collection target of Rs5,100 also proposed; Fund agrees to provide relief to businesses affected by pandemic

ISLAMABAD: The International Monetary Fund (IMF) has proposed Rs5,100 billion revenue target in the next budget for fiscal 2020-21, including additional tax measures of Rs575 billion, sources told The Express Tribune on Tuesday.

A senior Federal Board of Revenue (FBR) official said that in the recent talks with the IMF via a video link, the Fund had been cautioned that business sectors had been affected by coronavirus pandemic, but it agreed to provide relief in the next fiscal year’s federal budget.

At the same time, however, progress had been made with the IMF on the implementation of reforms in accordance with the terms of $6 billion Extended Fund Facility Programme (EFF), which would continue into the next budget, the official added.

The IMF had proposed enforcement of administrative measures for tax integration and harmonisation along with elimination of unnecessary exemptions and bringing new sectors into the tax net.

Under these measures, the IMF has proposed additional revenue measures of Rs575 billion in the next budget. The sources said that Pakistan was in favour of a tax collection target of Rs4,700-4,800 billion for the next financial year but the IMF proposed Rs5,100 billion.

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“Pakistan is under intense pressure from the IMF to set tough targets in the next budget,” a source said, adding that a detailed briefing on budget formulation had been given to Prime Minister Imran Khan a few days ago.

“Political commitment and political support on budget targets as well as stakeholders will be taken on board,” said the source. “Goals are difficult to achieve,” he added. “Concrete enforcement and administrative measures will be taken.”

According to sources, important steps regarding audit were also under consideration. They added that important amendments were also being made to the tax laws, including an FBR proposal to introduce modern information technology-based automated system.

“The IMF loan programme will not be resumed until the budget targets are set as per IMF conditions,” the source said. “The IMF demands that the budget deficit be fixed at 0.4% of GDP [gross domestic product] while Rs2,700 billion be allocated for interest and debt repayment.”

According to the sources, Rs5,100 billion tax collection target would require additional revenues of Rs800 billion. For that purpose, new taxes of Rs575 billion would have to be levied while the rest could be collected through enforcement and administrative measures.

“It is not possible to achieve this goal with normal growth rate. It will require a 30% growth, which is impossible given the coronavirus pandemic situation. “The normal growth in revenue will be at the most at 15-18% which is not enough to achieve this target,” said another source.

The sources said that the government wanted to provide relief to the manufacturing sector in the budget to support the virus-affected economy, for which proposals to revise duty and tax rates on raw materials and the sales tax rates were under consideration.

According to sources, a package for promotion of remittances was also under consideration. Under the proposed package, debit cards and loyalty cards would be issued to overseas Pakistanis, who sent remittances, by abolishing withholding tax on remittances from July 1, 2020.

Among other measures, smartphone-based discount products would be introduced. In addition, a special app in the style of Vouch 365 will also be launched. Besides, children of remittance senders would be given 50% discount in fees of the Overseas Pakistanis Foundation (OPF) schools and colleges as well as special quotas for them in the housing schemes.

The sources added that in the light of the guidelines given in the recent meeting chaired by the prime minister, the budget estimates would be finalised by the end of this month and submitted for approval by the federal cabinet in the first 10 days of next month.