Islamabad January 21 2022: The Ministry of Finance in Pakistan has disclosed a plan to the International Monetary Fund (IMF), proposing the imposition of new taxes amounting to PKR 216 billion. This plan is intended to address any potential revenue shortfalls in case the monthly cumulative Federal Board of Revenue (FBR) revenue falls below the projected target for the remaining period.
Pakistan’s budget initially projected PKR 1,113 billion in State Bank of Pakistan (SBP) dividend transfers, but the realized amount fell short by PKR 141 billion. This shortfall was attributed to variations in interest rates, exchange rates, and the volume of liquidity operations.
While the robust revenue performance in Q1 may alleviate some of this deficit, achieving the primary deficit target depends on effectively implementing all FY24 budget measures. Measures to expand the tax base, including issuing tax notifications to over 900 thousand non-filers identified by the Federal Board of Revenue (FBR), are crucial.
Although internal taxes have outperformed expectations, they are expected to play a more significant role in tax collection as the year progresses. The government commits to monitoring the performance of Federal Excise Duty (FED), income tax (including advance payments and withholding taxes), and the expansion of the taxpayer base. Timely monthly data on agreed performance indicators will be provided to the IMF team early in the following month. If revenue falls short, appropriate corrective measures will be adopted to ensure targets are met.
Furthermore, if the monthly cumulative FBR revenue falls short of the projected target by 1.5 percent in Q2, 0.5 percent in Q3, or 0.1 percent in Q4, Pakistan will consider adopting one or more contingency measures.
The government proposes raising the Goods and Services Tax (GST) rate for textiles and leathers (tier-1) from the reduced rate of 15 percent to the standard rate of 18 percent, with an expected monthly collection of PKR 1 billion.
Additionally, the government may impose Federal Excise Duty (FED) on sugar at the rate of PKR 5 per kilogram, anticipating a monthly collection of PKR 8 billion. A collection of PKR 2 billion per month is expected through advance income tax on the import of machinery by increasing it by 1 percentage point.
Increasing advance income tax on the import of raw materials by industrial undertakings by 0.5 percentage points is projected to yield PKR 2 billion per month. A 1 percentage point increase in advance income tax on the import of raw materials by commercial importers could result in a monthly collection of PKR 1 billion.
Other proposed measures include increasing withholding tax on supplies by 1 percentage point (expected monthly collection of PKR 1 billion), raising withholding tax on services by 1 percentage point (expected monthly collection of PKR 1.5 billion), and increasing withholding tax on contracts by 1 percentage point (expected monthly collection of PKR 1.5 billion).
