Interim Finance Minister Dr Shamshad Akhtar, on Thursday, termed this year’s tax collection target of over Rs9.4 trillion as low and asked authorities to work on a plan to increase the collection to Rs15 trillion in the next fiscal year.
The minister’s remarks came during an internal meeting on the restructuring of the Pakistan Revenue Automation Limited (PRAL), a subsidiary of the tax machinery and its technology arm. Akhtar also expressed displeasure over the performance of the Federal Bureau of Revenue (FBR) members and requested a one-page report on their achievements during their stay at FBR headquarters.
Sources indicated that the finance minister mentioned in the meeting that the Rs9.415 trillion annual tax collection target was low for the FBR for this fiscal year, representing a 31% increase over the previous fiscal year’s actual collection, despite a prevailing average inflation rate of nearly 29% in the first four months.
However, the minister’s remarks may impact the International Monetary Fund (IMF), which began a 14-day review of Pakistan's performance in the first quarter of this fiscal year on the same day.
The FBR exceeded its revenue target for the fourth consecutive month, collecting Rs2.75 trillion in July-October, exceeding the target by Rs68 billion and eliminating the need for a mini-budget. This year, the FBR obtained Rs591 billion more than the last fiscal year.
Sources say the finance minister urged the FBR to aim for a tax collection of Rs15 trillion in the next fiscal year, requiring an 84% growth over this year’s projected collection of Rs9.415 trillion.
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During the first review meeting on FBR matters, the IMF received a briefing on the FBR’s collection status and inquired about the prospects of taxing agriculture and real estate sectors.
A recent World Bank report suggested that Pakistan could collect additional taxes equal to 3% of the GDP by enhancing revenue collection from the real estate and agriculture sectors. However, due to constitutional constraints, agriculture is a provincial subject, and the federal government lacks the mandate to tax it.
design: Ibrahim Yahya
These developments coincided with the Sindh High Court’s decision to grant a stay order against deemed income tax on immovable assets, protecting individuals who pay 50% of their tax liability. Taxpayers had challenged section 7E of the income tax law for the tax year 2023 before the Sindh High Court (SHC).
The SHC disposed of the petitions with directions for the FBR not to take coercive measures against the petitioners regarding payment of the tax on deemed income for the Tax Year 2023, subject to the payment of 50% of the deemed income tax liability for the said tax year. The petitioners were represented by Abid Shaban, Barrister Asad Tola, and Amayed Tola, who is a tax consultant.
Section 7E was introduced through the Finance Act 2022, subjecting immovable properties with a fair market value exceeding Rs25 million held by resident individuals to a 20% tax on an amount equal to 5% of their fair market value, with certain exclusions. This imposition applied retrospectively and prospectively, covering tax year 2022 and onwards, but it faced legal challenges from taxpayers, leading to multiple cases filed in provincial High Courts across the country.
Due to these legal challenges, the FBR had collected less than Rs1 billion for deemed income tax, falling short of its annual target of Rs25 billion. The deadline for companies to file their returns is December 31, and collection is expected to increase by that time.
Sources indicated that the finance minister expressed dissatisfaction with the performance of FBR members in grades 21 and 22, the highest tier of the bureaucracy, and requested proposals from the FBR for the restructuring of PRAL, despite PRAL’s role as a technology tool. The FBR had established two committees for restructuring PRAL, with the aim of reducing at least 25% of its workforce. The minister had instructed specific proposals for the retrenchment, potentially leading to the termination of around 220 employees out of the nearly 900 currently employed.
For the retrenchment of PRAL employees, a human resource committee was established under Mukarram Jah, member legal customs of the FBR. This committee was tasked with assessing the existing PRAL workforce and the current workforce structure, including skill sets, roles, responsibilities, and identifying areas where workforce right-sizing is required and providing recommendations.
Published in The Express Tribune, November 3rd, 2023.
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