Finance czar vows to lift tax take to 11% of GDP despite shortfall

ISLAMABAD:

Finance Minister Muhammad Aurangzeb on Wednesday reaffirmed Pakistan's commitment to raising tax collection to 11% of GDP by the end of the fiscal year, despite the Federal Board of Revenue (FBR) missing its quarterly target by Rs198 billion.

Aurangzeb told reporters after a parliamentary committee meeting that negotiations with the IMF were progressing in the "right direction."

Separately, Pakistan informed the IMF that its requirement to make public the asset declarations of senior public officials — including beneficially owned assets and those held by family members — would apply only to civil servants, not the judiciary or other state institutions.

"We are very clear that we remain committed to achieving the FBR's tax-to-GDP ratio of 11% by the end of this fiscal year," the minister said in response to questions over the shortfall.

He was speaking to reporters after the meeting of the Senate Standing Committee on Finance. Senator Saleem Mandviwalla of the PPP chaired the meeting.

For the current fiscal year, the IMF has set Pakistan a target of raising the FBR's tax-to-GDP ratio by 0.7 percentage points to 11%. This translates into an annual collection goal of Rs14.13 trillion, requiring extraordinary enforcement measures and significant efforts to broaden the tax base. The FBR will need to move beyond perks such as cars and multiple salary increases for officers, and instead focus on expanding the taxpayer base to meet the target.

In the previous fiscal year, the FBR had missed IMF benchmarks on both counts: the tax-to-GDP ratio slipped below the 10.5% target, while absolute collection also fell short of nearly Rs13 trillion.

Against the July-September target of Rs3.083 trillion, the FBR collected Rs2.885 trillion. It suffered a shortfall of Rs198 billion within a span of just three months despite launching multiple initiatives, including a heavily funded FBR transformation plan.

The minister said that some of the revenues were tied up in litigation, hoping that decisions on them can bridge the revenue shortfall sustained in the first quarter. But he clarified that it is up to the courts how they decide the cases.

The FBR said that Rs177 billion worth of tax revenues were stuck up in the Supreme Court of Pakistan and it has now conveyed to the IMF that the apex court is expected to announce a decision this month. However, similar assurances to the IMF had also been given in the last fiscal year.

The disputed cases involve challenges by taxpayers against the retrospective application of the super tax and the government's decision to impose additional levies on 10 sectors of the economy.

While responding to a question whether the IMF talks would conclude on time, the Finance Minister said that "so far, so good". He added that the IMF talks were covering both the quantitative performance criteria and the structural benchmarks.

"Whatever discussions are happening, they are moving in the right direction", the Finance Minister added.

Assets Declarations

The sources said that early this week, the Cabinet Division also gave a briefing to the IMF about the implementation status of a condition to amend the Civil Servants Act to ensure that asset declarations of high-level public officials, including assets beneficially owned by them and a member of their family, are digitally filed and publicly accessible through the FBR.

The IMF was told that under the civil servants act only the federal government employees are covered while the judiciary and the military officers do not fall in the purview of the law.

The IMF inquired about the accountability mechanism of civil servants having discrepancies in their asset declarations. It was told that the FBR can only assess these declarations in view of any income tax evasion and cannot scrutinize the assets with the lenses of any corrupt practices, said the sources.

The discussions took place whether a new body should be formed to comprehensively analyze the assets declarations and not limit these to just tax evasion, the sources added.

However, the IMF condition largely remains ineffective, as even the majority of the civil servants do not fall in its purview.

The law states that the "civil servant means a person who is a member of an All-Pakistan Service or of a civil service of the Federation or who holds a civil post in connection with the affairs of the Federation, including any such post connected with defense.

But it does not include a person who is on deputation to the federation from any province or other authority and a person who is employed on contract, or on work-charged basis or who is paid from contingencies.

Due to a very narrow definition of a "civil-servant", it is estimated that hardly 20,000 to 25,000 civil servants' assets can be disclosed. The officers of the autonomous bodies, regulatory bodies like the State Bank of Pakistan, the National Electric Power Regulatory Authority, the Oil and Gas Regulatory Authority and the Pakistan Telecommunication Authority and the provincial civil services will still remain exempted from digitally filling the returns and their subsequent public disclosure.

Under the condition of the IMF a new clause 15-A Declaration of Assets in the old law had been proposed to be introduced aimed at enabling the declaration of the assets of the civil servants. The government has also relaxed the Right to Access to the Information Act of 2017 to enable the public disclosure of this information.

The new clause states that "notwithstanding anything contained in clause g of section 7 of the Right of Access to Information Act 2017, the declaration of assets of a civil servant of BS-17 and above, his spouse and dependent children, including domestic and foreign assets and liabilities, as may be prescribed, filed with the Federal Board of Revenue and same shall be publicly available, through FBR, in accordance with the rules as may be prescribed.