IMF demands Rs1.3tr in new taxes

Govt informed of Rs200b revenue shortfall in current fiscal

ISLAMABAD:

The International Monetary Fund (IMF) has asked Pakistan to impose additional taxes of around Rs1.3 trillion in the next budget which, if accepted, would take the Federal Board of Revenue’s (FBR) annual target to a whopping Rs12.3 trillion.

The Rs1.3 trillion additional taxes are equal to 1% of the size of the next year’s economy.

The global lender is asking to recover half of the additional taxes from salaried and business individuals, the government sources told The Express Tribune.

The sources said that the IMF shared its final Tax Diagnostic report with the government in which it has retained the recommendation that deals with reducing the number of income tax slabs for the salaried individuals to four. If the government accepts the recommendation, it will massively increase tax burden on the salaried and business individuals.

The sources said discussions on the IMF’s demand for the additional taxes of around Rs1.3 trillion or 1% of GDP would take place during the upcoming mission-level talks with the IMF for the next bailout package.

They said that the IMF’s demand for the Rs1.3 trillion new taxes was not the final verdict and the government would negotiate with the lender, particularly about the IMF’s insistence on putting additional burden on the salaried class.

The IMF and the government have milked the salaried class to an extent that the middle-class segment of society has started rationing its expenditure.

On Monday, the authorities concerned began internal discussions on the budget for fiscal year 2024-25 in the light of the IMF visit. The government had also been informed that the current fiscal year’s Rs9.415 trillion tax collection target was no longer achievable.

The tax authorities informed the government that its collection may fall short of the annual target by around Rs175 billion to Rs200 billion. This is the amount that is stuck in courts after petitioners challenged the government’s super tax, tax on real estate and windfall gains made by commercial banks.

Out of the Rs415 billion additional tax measures that the PDM government had taken in the previous budget, nearly half of it is now stuck in the courts, which reflects badly on the budget-making exercise.

Read Pakistan aims for large IMF loan

The sources said that the FBR informed Finance Minister Muhammad Aurangzeb that it can show a 19% increase in tax collection without taking any additional revenue measures. The actual collection is expected to be around Rs9.2 trillion in this fiscal year. The tax authorities told the minister that without the additional revenue measures; the FBR can collect nearly Rs11 trillion in the next fiscal year.

But in order to increase the FBR’s tax-to-GDP ratio to 10% in the next fiscal year, the target has to be around Rs12.3 trillion.

If the government accepts the IMF’s demand for little under Rs1.3 trillion tax measures, the FBR’s target for the next year will be around Rs12.3 trillion. This requires a 33% increase over this year’s collection. In absolute terms, the FBR’s collection target might be around Rs3.1 trillion higher than this fiscal year –- a sum that the IMF and the government want to milk from an already depressed economy.

The government has discussed potential areas of taxation in the next fiscal year. These include collecting more taxes from retailers, withdrawal of sales tax exemptions, including on agriculture inputs and machinery, and ending reduced sales tax rates for the businesses registered with the FBR through point of sale (POS), said the sources.

The government charges 15% sales tax on the sales made by garments-related businesses registered with the FBR through POS. The idea is to increase it to the standard 18%. The tax rate had been kept lower to encourage businesses to get registered with the FBR. In the last budget, it was increased from 12% to 18%.

The government is eying withdrawal of tax exemptions and increase tax burden at a time when the FBR has started facing problems in achieving its monthly collection and people are buried under 25% inflation.

The FBR has missed its 10-month tax collection target by a margin of Rs52 billion. It could pool Rs7.362 trillion as against the goal of Rs7.414 trillion. The collection was Rs15 billion less than even the FBR’s own expectation -–a shortfall that the administration attributes to the go-slow policy adopted by the officers against the prime minister’s move to remove the compromised and inefficient officials.

The FBR missed its monthly target by Rs57 billion as it could only pool Rs650 billion in April.

In a meeting with a foreign bank delegation, Muhammad Aurangzeb stressed upon broadening the tax base and expediting the digitisation process of the FBR, according to the finance ministry.