The International Monetary Fund may lower the tax collection target to less than Rs12.5 trillion due to overall slowdown of economic activities and huge shortfall suffered so far in a move that will still require meeting the remaining four months' targets and partially recoup some of the shortfall.
Any reduction in the target against the original goal of over Rs12.9 trillion will depend upon the Finance Ministry's ability to cut the expenditures to protect the overarching IMF programme goal to generate Rs1.2 trillion primary budget surplus in this fiscal year, according to the government sources dealing with the IMF team.
The IMF also asked the energy ministry to share its projections of the circular debt for the next fiscal year 2025-26. The Power Division assured the IMF that in this fiscal year circular debt will remain below the agreed threshold of Rs2.429 trillion.
The IMF and Pakistani authorities met on Wednesday for the third consecutive day to discuss the performance of the energy sector, progress on publications of various social and economic surveys by the Pakistan Bureau of Statistics. The discussions were also held on the budget numbers and external financing requirements.
The government sources said that both sides discussed the possibility of lowering the tax target between Rs12.3 trillion to Rs12.5 trillion. The tax authorities suggested reducing the target by Rs579 billion as against the annual goal of Rs12.913 trillion, they added.
The sources said that the IMF indicated lowering it by Rs435 billion to less than Rs12.5 trillion but no formal decision has been taken.
The tax authorities were of the view that the past four years' trend suggested that they can achieve the remaining targets but needed adjustment against the total target.
The FBR informed the IMF that it was comfortable to achieve March's tax collection target. But there may be a shortfall against April and May targets, which are expected to be recovered in June.
The FBR has pitched a plan to lower the tax rates for tobacco, beverages and construction sectors to get another Rs90 billion through economic activities and better sales. Nearly Rs300 billion are claimed to be recovered through court cases.
In pursuit of a highly tax target of over Rs12.9 trillion, the government had slapped Rs1.3 trillion in additional taxes, mainly burdening the existing paying people and sectors. However, it has already sustained Rs606 billion shortfalls during July-February period. The salaried class became the victim and yet the target could not be achieved.
Due to lower-than-projected autonomous growth, the FBR suffered a loss of approximately Rs450 billion by February. No further shortfall on this account is expected until June, according to the FBR officials.
The IMF has set the condition to generate a primary budget surplus equal to 1% of the size of the economy or little over Rs1.2 trillion. Any reduction without adjusting the expenses may compromise this goal.
The sources said that the Finance Ministry had little fiscal space available to cut the expenditure except making another major adjustment in the Public Sector Development Programme. There is a possibility that the Finance Ministry may not release fourth quarter budget barring releases for the foreign-funded projects.
The government had originally proposed Rs1.4 trillion PSDP, which has already been slashed to Rs1.1 trillion. But spending during the first half was quite low, leaving large room for further cuts in the development budget.
The Finance Ministry is also expecting about Rs50 billion saving against this year's allocated subsidy for the power sector.
One of the options to recoup some of the shortfalls is recovering advance income tax under the section 147 of the Income Tax Ordinance. The authorities believe that about Rs130 billion can be recovered by making extra efforts.
During the first seven months of this fiscal year, the FBR received Rs929 billion in advance income tax under section 147, which was 27% higher than the corresponding period of the last year.
The FBR informed the IMF that it recovered Rs90 billion through enforcement measures during the first eight months of this fiscal year. But this primarily came from the banks on account of windfall income tax and increase in the base income tax rate to 44%.
On Tuesday, the Finance Minister Muhammad Aurangzeb told The Express Tribune that the government would exhaust other avenues to make for the revenue shortfall instead of taking any additional revenue measures.
The Pakistan Bureau of Statistics also gave a briefing to the IMF on the status of publication of various social and economic surveys. These surveys are critical to know the real economic and social health of the society, as the government does not have the latest numbers of poverty, unemployment and the agriculture census.
The PBS informed the IMF that currently, field operations of the first ever digital provincial level Household Integrated Economic Survey (HIES), 2024-25 is in progress.
The HIES provides a clear picture on literacy rate, out of school children, enrollment, child health particularly infant mortality rate, women health indicators and household income, savings, liabilities and Consumption Expenditure and Consumption Patterns at national and provincial level with urban and rural breakdown.
This survey also provides requisite data for the estimation of consumption-based Poverty. Out of total 62 sustainable development goals, 31 indicators are being covered in HIES Surveys, the IMF was told. The lender was informed that the HIEC results will be published in December this year.
Pakistan has also launched Labour Force Survey 2024-25 and fieldwork is currently underway. The government told the IMF that the quarterly labour survey reports will not be published; instead, an annual report will be published within six months following the completion of fieldwork.
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