Business

‘IMF-influenced’ budget sparks disappointment

Chambers warn new tax proposals could harm exports, call for revisions to prevent economic downturn

Our Correspondent June 16, 2024

Sources involved in discussions with the IMF revealed to The Express Tribune that the IMF is not allowing Pakistan to significantly reduce interest rates in the next fiscal year, which will keep the government’s budgetary constraints high. Photo: REUTERS

KARACHI:

While pointing out many anomalies in the federal budget for fiscal year 2024-2025, the Karachi Chamber of Commerce and Industry (KCCI) highlighted that the budget appears to have been prepared in the standard template of the International Monetary Fund (IMF), disappointing both the business community and the working classes of the country.

The limited fiscal space and debt obligations left little room for the finance ministry and Federal Board of Revenue (FBR) to provide significant relief for trade and industry in particular and the public in general. It is of deep concern for trade and industry based in Karachi that a major part of the budget proposals for FY2024-25 compiled by the KCCI were ignored in the finance bill 2024, said the chambers.

The proposed shift from a 1% turnover-based Final Tax Regime (FTR) to standard taxation at 29% of taxable profit would prove to be disastrous for exports; hence, this proposal to remove exports from FTR must be dropped from the finance bill 2024 to prevent further deterioration of the trade deficit and resulting pressure on foreign exchange reserves.

KCCI also mentioned that the finance bill 2024’s proposal to eliminate zero-rating on local supplies under the export facilitation scheme (EFS) will have significant adverse effects. Removal of zero-rating on local supplies to registered exporters will compel exporters to claim refunds of Sales Tax from FBR, which is a lengthy process contrary to the spirit of EFS.

Meanwhile, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said the FBR has set a revenue target of Rs12,970 billion for the fiscal year 2024-25, a significant 38% increase compared to last year. A huge amount of Rs9,775 billion is dedicated to servicing interest payments, which is 75% of the total tax target. The federal government should devolve provincial subjects and reduce its expenditures.

As per the budget document, exporters shall now be subject to paying normal income tax instead of the previous practice of withholding 1% income tax as full and final liability. This change will create hassle and discourage exporters.