Govt eyes Rs450b in tax via digital tracking

In an effort to achieve this fiscal year's overambitious tax target, the government has decided to collect Rs450 billion through enforcement measures by aiming to digitally capture Rs48 trillion in services sector supplies over the next three months.

Prime Minister Shehbaz Sharif has endorsed the Federal Board of Revenue's (FBR) plan this week, which is now crucial to achieving the FY2024-25 annual tax target of Rs12.97 trillion, according to government sources.

The PM was briefed that without implementing new enforcement measures, the Rs12.97 trillion annual target would be unachievable. He has given the go-ahead to aggressively implement the plan by expanding the Point of Sale (POS) initiative to various sectors of the economy.

These enforcement measures include collecting at least Rs50 billion from traders and Rs30 billion through the upward revision of property valuations.

The POS initiative, which has been under implementation for years, is now aimed at fully capturing the Rs47.5 trillion in sales being made by 10 major sectors over the next three months. These sectors include wholesale and retail, transport services, financial services, government services, real estate, construction, utilities, mining, health, education, and hospitality services.

Of the Rs47.5 trillion, more than half—Rs20 trillion—is said to come from the wholesale and retail sector.

Successive governments have spent hundreds of millions of rupees, and shoppers pay Rs1 on every shopping receipt under the POS scheme.

For now, the premier has ruled out the possibility of introducing a mini-budget, despite the tax machinery facing a significant revenue shortfall for the July-September quarter of this fiscal year. The FBR has so far collected Rs500 billion this month, against the requirement of Rs1.2 trillion, with only one week left.

The coalition government had agreed with the International Monetary Fund (IMF) to meet the Rs12.97 trillion target this year as part of the loan conditions. The FBR informed the PM that achieving the revenue targets would require additional measures beyond policy changes and autonomous growth in collections.

PM Sharif was told that the revenue impact of the new taxes imposed in the budget was Rs1.345 trillion. The FBR hopes that inflation and real economic growth will bring in another Rs1.9 trillion. This leaves the FBR with Rs450 billion that it aims to collect through enforcement measures.

The IMF board is scheduled to meet on September 25th to approve Pakistan's request for a $7 billion loan package. Finance Minister Muhammad Aurangzeb is expected to meet the top management of the IMF on the sidelines of the United Nations General Assembly session. The finance minister is travelling with the PM to the United States.

Sources said the Rs1.9 trillion autonomous growth in collections depends on achieving at least 3% GDP growth this year and 3.5% growth in large-scale manufacturing.

The FBR has also estimated Rs1.9 trillion in collections based on an annual inflation rate of 12.9% and 17% real growth in imports. If the inflation rate falls below this projection and imports remain low, the FBR will need to collect more than Rs450 billion through enforcement measures.

The FBR chairman believes that with the implementation of the new transformation plan, primarily through digital tracking and the POS initiative, the machinery can generate more than Rs450 billion this fiscal year. The plan also includes enhancing collections by targeting both compliant taxpayers and non-filers of income tax returns.

According to the briefing to the PM, the FBR achieved only a 6% increase in collections after adjusting for the impact of inflation for the 2016-18 period, and only 2% for 2018-24, reflecting its poor performance. Furthermore, the FBR's inflation-adjusted and real GDP growth-adjusted increase in collections was just 1% in the 2016-18 period and a negative 0.3% for 2018-24.

The FBR intends to go after compliant taxpayers by restricting them from withdrawing more than Rs30 million in cash annually. Those filers of income tax returns who claim more than Rs10 million in income will be allowed to buy only cars, but they must explain the source of income before purchasing a plot.

Filers with incomes below Rs10 million will need to provide explanations before purchasing a car, plot, or investing in securities and mutual funds.

The PM has approved the plan to target Pakistan's top 5% of the workforce, where the FBR believes Rs1.6 trillion in uncollected money is parked. PM Sharif was informed that the top 1% has an average annual income of Rs13.2 million. The wealthiest workforce paid Rs500 billion in taxes last year, and the FBR believes it can collect an additional Rs1.2 trillion.

Sharif has also approved freezing the bank accounts of unregistered manufacturers and wholesalers with annual turnovers above Rs250 million. This threshold for retailers is set at Rs100 million.

The FBR will have the authority to appoint receivers to confiscate the assets of unregistered manufacturers and wholesalers. It has also expanded the definition of tier-I retailers to include high-end luxury goods, electronic appliances, imported tiles, jewellers, shops with annual turnovers greater than Rs250 million, and those in posh areas.

In addition to the POS initiative, the FBR has received the PM's approval to track goods in the manufacturing sector. So far, it has primarily tracked goods in the chemicals, fertiliser, and pharmaceutical sectors.

There is also a plan to digitally track petroleum products within the next year, with plans to target the textile and beverages sectors in the next six months.