KARACHI: The Pakistan Tehreek-e-Insaf (PTI) government is set to unveil a mini-budget within two months to slap additional taxes of around Rs150 billion aimed at achieving the downward-revised annual tax collection target of Rs5.238 trillion, ET reported.
The under-consideration revenue measures to the tune of close to Rs150 billion will be over and above the unprecedented Rs735 billion worth of taxes that the PTI government introduced in the budget in June this year. Yet it faces a huge revenue shortfall, which is going to widen by the end of current month.
Among the potential areas that will be targeted are increase in sales tax on petroleum products, withdrawal of some sales tax exemptions by charging taxes on retail market prices and increase in withholding tax rates, according to sources in the Federal Board of Revenue (FBR).
They said the plan was to collect nearly Rs150 billion through additional revenue measures in addition to pocketing windfall gains in the shape of sales tax through further increase in electricity and gas prices from January.
However, the prevailing uncertain political situation could influence both the timing and quantum of additional taxes, the sources said.
At a time when the government is planning to impose new taxes on the people, it is also set to promulgate a presidential ordinance next week to give concessions in taxes to traders and foreign banks that are making easy money by investing in government securities. The federal cabinet on Tuesday approved a summary for the promulgation of the presidential ordinance, the second amendment to the Income Tax Ordinance 2019. The minimum tax rate for traders will be lowered to 0.5% and the dividend tax rate for foreign bankers will be cut from 30% to 10%.
International Monetary Fund (IMF) Resident Representative Teresa Daban Sanchez and FBR Chairman Shabbar Zaidi on Tuesday hinted at bringing the mini-budget. But its timing and quantum of additional taxes will depend on the December tax collection figures.
“The Rs5.503-trillion revenue projection was ambitious and we have another review in February,” said Sanchez while responding to a question on the IMF’s decision to cut the FBR’s tax target to Rs5.238 trillion.
She was speaking at an event organised by the Sustainable Development Policy Institute. The IMF finally cut the unrealistic revenue collection target of Rs5.503 trillion to Rs5.238 trillion, a reduction of Rs265 billion.
“Other actions could also be taken,” said the IMF resident representative without explaining the nature of these actions. Still there is a gap between what can be the actual collection and the Rs5.238-trillion target. Sources said assessments made by the IMF and the FBR showed the collection below Rs5 trillion without additional measures.
For the first half (July-December) of the current fiscal year, the FBR’s reduced target was Rs2.367 trillion. However, as of December 24, the provisional collection stood at only Rs1.872 trillion. In the remaining four working days of this month, the FBR needs to collect Rs495 billion, which will require Rs123 billion per day collection – a task that can never be achieved.
“We can only comment on the need for additional tax measures after seeing results of the first half of the fiscal year,” said Zaidi while talking to The Express Tribune. He said the tax collection was growing at a 17.5% annual rate, which was quite good in the given macroeconomic conditions. Responding to another question, Zaidi said the IMF was not putting extraordinary pressure to immediately introduce additional revenue measures.
Pakistan has also given a fresh written commitment to the IMF about additional revenue measures in the new Memorandum of Economic and Financial Policies (MEFP) and Letter of Intent (LoI) that it submitted to the IMF before approval of the second loan tranche of $452.5 million.
“We believe that the policies set forth in the attached MEFP are adequate for the successful implementation of our programme, but we will take any additional measures that may be appropriate for this purpose,” wrote Adviser to PM on Finance Abdul Hafeez Shaikh in the LoI sent to the IMF managing director on December 2.
“We will consult the IMF on the adoption of these measures, and in advance of revisions to the policies contained in the MEFP, in accordance with the IMF’s policies on such consultation,” according to the LoI.
In the MEFP, Pakistan stated that the government would present the budget review to parliament by the end of February to guide implementation of the fiscal year 2019-20 budget, which would have an assessment of the budget estimates for the entire budget year.
“On the basis of the review’s findings, we will implement additional measures as needed to ensure that fiscal year 2019-20 annual targets are observed,” it added. Sanchez said the IMF did not just want increase in the tax collection but it wanted a quality increase in collection.
The focus going forward needs to remain on implementing high-quality tax measures, including the elimination of tax exemptions and loopholes, showed the IMF report.
The economic activity is softening as the economy adjusts to the policies, said Sanchez while commenting on the overall economic situation.
She said food inflation was also going up, which was a matter of concern. The resident representative said inflation expectations were moderating, suggesting that the monetary policy was responding.
She also emphasised that after the first review of the IMF programme, the focus would now be on institutional reforms aimed at consolidating first quarter’s gains. She said all the state-owned enterprises would be individually analysed and some of them might have to be liquidated.