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Thursday, December 5, 2024
Thursday December 5, 2024
Thursday December 5, 2024

IMF satisfied with tax steps, mini-budget unlikely amid economic recovery

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Pakistan’s tax-to-GDP ratio improves, easing the need for additional taxes or a mini-budget, with a focus on future tax reforms and ongoing economic stability

The International Monetary Fund (IMF) has expressed satisfaction with Pakistan’s progress in increasing the tax-to-GDP ratio by nearly 1.5 percentage points, alleviating concerns over the need for additional tax measures or a mini-budget. Sources close to the ongoing discussions with the IMF revealed that the Federal Board of Revenue (FBR) will maintain its revenue collection target of Rs12.97 trillion for the current fiscal year, without the necessity of imposing new taxes.

Despite a tax shortfall of approximately Rs190 billion in the first four months of the fiscal year (July to October), the government remains optimistic about economic recovery by December. Authorities anticipate that a stable exchange rate, along with a reduction in the State Bank’s policy rate, will help offset the shortfall and boost economic activity.

The IMF has acknowledged Pakistan’s tax reform efforts, including the increase in the tax-to-GDP ratio from 8.8% to 10.3%. With the IMF’s positive response, the government has ruled out the possibility of hiking the petroleum levy or imposing General Sales Tax (GST) on petroleum products for the time being.

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Looking ahead, the government remains committed to implementing further tax reforms, including the collection of agricultural income taxes from the next fiscal year. A draft of the Tax Laws Amendment Ordinance 2024, which introduces a new family income tax return system and abolishes the concepts of non-filers and late filers, has already been presented for approval.

Meanwhile, the FBR’s efforts to widen the tax base are ongoing, with discussions with the IMF regarding adjustments to the Tajir Dost Scheme aimed at bringing more traders into the tax net. While the FBR has collected Rs12 billion from retailers in the first quarter of 2024-25, the scheme is still targeting only a small fraction of the potential retail market.

The Senate Standing Committee on Finance and Revenue also raised several issues, including the slow progress on Islamic banking, with the central bank planning further deliberations on the topic. Additionally, concerns about a 10% levy on transport and business between Pakistan and Iran were discussed, with over 600 trucks reportedly stalled due to the tax. The matter will be referred to the Standing Committee on Communications for further resolution.

Lastly, the committee addressed concerns over fraudulent point-of-sale receipts and counterfeit ATM notes. FBR officials assured that enforcement measures would be enhanced to tackle these issues.

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