Govt's indecision on tax measures fuels uncertainty

Pakistan's economic team is indecisive over the quantum of revenue measures in a bid to end the uncertainty that has stemmed from the delay in the 9th review under the International Monetary Fund programme, media has learnt from reliable sources.

Tax officials' initial estimates show a generation of Rs100 billion from raising various tax rates, while the government expects another Rs100bn from the proposed flood levy. The FBR has, however, put forward its estimates before the IMF, stating that despite falling imports, the projected budgetary target can be achieved mainly because of the highest-ever inflation.

An official source in the FBR told media that the board has made initial work to raise rates of various withholding taxes, and increase rates of regulatory duty on luxury items to make additional revenue.

The fund officials estimate a shortfall of Rs400bn in FY23, which the FBR has rejected. "We have shared our projections of revenue collection with the fund a few days back", the official said, adding the board has not received any reply from the IMF so far.

The World Bank is also reviewing various tax policy measures and suggesting various policy actions for implementation. The non-implementation of those policy measures could also trigger delays in the release of funds to Pakistan.

On the other hand, FBR projection shows that revenue loss at the import stage will be compensated by the historically high inflation. As of today, the piling of un-cleared containers reaches more than 4,000 at Karachi ports, the source said, adding it will not only cause lesser duty, and tax collection at the import stage but also lead to a slowing down of the economy.

According to the source, there is also opposition to the flood levy because it will further add to the cost for industrialists. The super tax has already been challenged in the court, the source in the FBR said, adding FBR is hopeful to vacate the case in the apex court. And FBR estimates show no need for fresh taxation measures to fill the proposed gap. However, IMF insisted on additional revenue measures to keep the revenue collection on track to reach the projected tax target of Rs7.47 trillion by the end of June 30, 2023, a 21.5pc growth over the last year's collection.

The FBR collection rose 17pc in 1HFY23 against Rs2.929tr collected in July-December last year. This growth is much below what the government had committed to the IMF to achieve the target for FY23. However, FBR believed that the gap will be bridged when the collection from super tax is restored in the next couple of months.

The gap in reporting mechanism between Pakistan and IMF did not confine only to FBR revenue collection but also include differences over the collection of petroleum development levy (PDL).