Govt may set Rs14.3tr tax target for next fiscal

FinMin likely to deliver budget speech by June 3

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ISLAMABAD:

The government may set a new tax target at over Rs14.3 trillion, which is higher by Rs2 trillion over this fiscal year's downward revised goal and may require at least Rs500 billion in additional measures to achieve it.

After working out the new tax target figure for the fiscal year 2025-26, the government has begun the exercise to shortlist measures that it would need to show that the Rs14.307 trillion goal is realistic and achievable.

Finance Minister Muhammad Aurangzeb is expected to deliver his second budget speech either on June 2 or June 3 before Eid holidays.

The Rs14.307 trillion target is equal to 11% of the next fiscal year's projected size of the economy.

A senior official of the FBR told The Express Tribune that the absolute tax target number may change, depending upon the size of the economy but the 11% of the GDP figure would be the target.

The development came as the deadline to inform the businesses about accepting or rejecting their budget proposals has lapsed. The government had invited proposals from various chambers and business associations in January with a promise to respond to them by the end of April about how many of those can be realistically accepted.

When contacted, Finance Minister Muhammad Aurangzeb said that the review of the budget proposals was underway as these proposals are still coming in.

The Rs14.307 trillion for fiscal year 2025-26, starting from July, is tentative and subject to the endorsement by the International Monetary Fund that is visiting Pakistan from May 14th to vet the budget.

The Rs14.3 trillion target is 16% or Rs2 trillion more than this year's Rs12.3 trillion downward target, the government sources said. It is also higher than the figure that the FBR pitched to the Finance Minister, which was significantly less than the target that the government wants to set for the tax machinery.

For this fiscal year, the government had set the original tax target of nearly Rs13 trillion or 10.6% of the GDP. Due to lower inflation and lower economic growth, the target has downward been revised to Rs12.3 trillion but it remains constant at 10.6% of the GDP.

The sources said that the authorities will have to take about Rs500 billion worth new tax measures to make the next target realistic and to end any uncertainty associated with it. These measures would come over and above Rs1.3 trillion additional taxes, which were imposed on the people, mostly on the salaried class, to achieve this year's target.

Despite putting an extraordinary burden on the people, the FBR has so far faced the tax shortfall of Rs830 billion, underscoring that the economy's ability to pay more has eroded without broadening the base. What is equal to a mini-budget, the government has already increased the petroleum levy rate by Rs18 to Rs78 per liter under different pretext to offset the impact of FBR shortfall.

FBR Chairman Rashid Langrial said on Wednesday that next year's budget would be tough in terms of achieving tax targets, forewarning the people about the upcoming taxation measures.

OICCI budget proposals

Meanwhile, Finance Minister Muhammad Aurangzeb held a meeting with the Overseas Investors Chamber of Commerce and Industry (OICCI) to discuss its budget proposals. The OICCI was not informed whether any of its proposals would be accepted.

The association has suggested the government to withdraw Rs5,000 currency notes to discourage cash economy. The size of the informal economy is estimated at least 40% of the formal economy but the government does not seem serious about cracking down on the informal economy.

The OICCI also recommended exempting the chemical dealers from 2% withholding tax that is charged from the distributors on supplies to traders.

In an important proposal, the association has also demanded to abolish 10% surcharge on individuals earning Rs10 million or more on compliant taxpayers as it places an unjust burden on regular filers.

Pakistan's highly marginalized salaried class paid Rs391 billion in taxes in just ten months. The salaried class paid 10% of the total income tax paid by the entire Pakistan compared to 0.6% paid by blue-eyed traders.

The OICCI has recommended the government to exempt up to Rs100,000 monthly income from tax, which is justified demand given the fast eroding purchasing power of the people. It has suggested that in order to retain the number of filers, the government may impose Rs1,000 token tax for incomes above Rs600,000 to Rs1.2 million annual income.

It has also demanded tax credit for deductible allowances for housing loans, education, and medical expenses. The OICCI has recommended limiting taxation of company contributions to Provident Fund to 10%, eliminating the Rs150,000 cap.

It has also sought specific exemption of capital value tax of% on foreign assets for expatriate Pakistanis returning and foreign nationals becoming resident employees.

In a major proposal, the OICCI has demanded reducing the corporate income tax rate gradually from 29% to 25% through an annual 1% reduction to align with other emerging economies. It has sought abolishing the super tax gradually over three years, in the first phase cutting from 10% to 6% from July.

The OICCI has demanded abolishing 15% income tax on payment of dividends, which takes the rate to 64% for some companies.

The OICCI has also demanded to reduce sales tax to 17%, which the government may not accept due to its major dent on the budget.

The association has asked to declare petroleum products as taxable supplies allowing input tax adjustments but the FBR showed reluctance due to the IMF programme.

It also rightly demanded reducing tax on packaged milk to 5% from 18% to encourage growth in the dairy sector, enhancing nutrition and affordability for the general public. In another major proposal, the OICCI has asked to restore zero rating of sales tax on local supplies under Export Facilitation Schemes (EFS) by withdrawing 18% GST. The IMF is not in favour of withdrawing this tax.

The OICCI has asked to reduce federal excise duty on aerated waters to 18% and juices to 15%, which has adversely affected the growth of these companies.