Pakistan has fulfilled one of the main conditions of the International Monetary Fund (IMF) for the last loan tranche of $1.2 billion by collecting more than Rs4.44 trillion in taxes during the first half of this fiscal year.
The tax authorities have also decided to start disconnecting the utility and mobile phone connections of non-filers of income tax returns from next month, aiming to enhance the tax base to more than six million individuals in this fiscal year.
The IMF had set the Rs4.425 trillion indicative tax collection target for the July-December period of this fiscal year. It is among one and a half dozen conditions that Pakistan must meet to qualify for the last loan tranche of $1.2 billion, to be negotiated in February or March.
Until the last working day of the month, the Federal Board of Revenue (FBR) has so far collected Rs4.440 trillion, showing an increase of Rs1.15 trillion or 35% over the collection made during the same period of the previous fiscal year. The FBR offices and banks will also remain open on the weekend, and the tax authorities hope to collect another Rs50 billion in the next two days.
According to an understanding reached with the IMF, the FBR will monthly inform the global lender about progress in its revenue collection. In case of a revenue shortfall in any month, the FBR will trigger back-up measures that include the imposition of excise duties and withdrawing sales tax exemptions.
The FBR’s management has so far performed exceptionally well, and the expectations are that the tax machinery will achieve the Rs9.415 trillion annual target despite a slump in imports.
Low tax collection has remained a chronic issue, with taxation skewed towards the indirect mode that has hurt poor people the most. This trend too has reversed, with the share of direct taxes increasing to 48% during the first half of this fiscal year, backed by better collection from real estate and commercial banks.
Out of the four types of taxes – income tax, sales tax, federal excise duty (FED), and customs duty – the FBR again met only income tax and FED targets.
Income tax collection amounted to Rs2.13 trillion, up Rs730 billion, or almost half, during the first half of this fiscal year. Income tax collection was about Rs335 billion more than the target, offsetting the impact of missed sales tax and customs duty targets.
Read FBR exceeds tax collection target by Rs35b
Sales tax remained the weakest area, with its collection reaching over Rs1.5 trillion, which was Rs250 billion, or 20%, more than the last fiscal year. But the amount was Rs220 billion less than the target due to low growth in tax receipts at the import stage. Still, the FBR collected around 60% of its sales tax at the import stage.
The FBR collected Rs265 billion in FED with 65% growth. It was Rs105 billion more than the last fiscal year. The collection of customs duty stood below the target by around Rs100 billion. The FBR received Rs540 billion in customs duty, which was Rs81 higher than the last year.
However, the FBR’s campaign to enhance the tax base is still moving at a slow pace. It has so far received 3.6 million income tax returns – a figure that has to be jacked up to 6.5 million by June to meet the promises made with the IMF and the Special Investment Facilitation Council.
The FBR will issue a new circular next month carrying all those names whose electricity, gas, and mobile phone connections will be disconnected due to their failure to file the returns, said Malik Amjad Zubair Tiwana, the Chairman of the FBR.
The chairman said that under the law, non-filers of income tax returns had the option until December 28th to submit their statements, and now it is time to take action against them.
The law authorises the FBR to disconnect the SIM cards, electricity, and gas connections of those who are legally required to file their returns but do not fulfil their statutory obligation.
In the tax year 2022, about 5.3 million individuals and companies had filed their annual income tax returns. It is estimated that little over one out of every four filers declared nil income in their returns, meaning they did not pay any tax but just filed the statements.
The World Bank last week approved a $350 million loan for budget support. During the board meeting, the World Bank directors showed concerns over Pakistan’s low tax-to-GDP ratio, hovering around 10% of the size of the economy.
Pakistan confronts a formidable challenge in its fiscal landscape characterised by rampant tax evasion, an alarmingly low tax-to-GDP ratio, and an inadequately low number of tax filers, according to a media brief released by the FBR on Friday.
It stated that the country’s revenue generation suffers significantly, resulting in insufficient funding for critical public services and vital socio-economic development initiatives. The pressing need to broaden the tax base looms large as a strategic imperative to fortify the nation’s financial foundation.
The FBR chairman reiterated that over 1.5 million new taxpayers would be added to the tax base of the country.
The FBR said that its field offices were in the process of conducting surveys and collecting information about businesses and commercial activities going on which would be made public in the near future. The FBR said that it was in possession of data for almost all those who are eligible to file a return of income; it is just a matter of a few weeks and days that all those committing non-compliance shall be brought to the tax net.
Published in The Express Tribune, December 30th, 2023.
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