Islamabad:
Pakistan shared a plan with the International Monetary Fund (IMF) on Friday to increase the number of income tax returns to 6.5 million by June next year, but warned the lender of potential risks to the 9.4 trillion target Rs from a stronger rupee combined. with low imports.
The tax authorities briefed the visiting IMF team on the revenue performance in the first four months of the current fiscal year and the prospects for meeting the annual target for the rest of the period, according to government sources.
They added that the IMF has been informed that the Federal Board of Revenue (FBR) will try to reach the target of Rs 9.415 trillion, but challenges remain. The annual target faces risks from low imports and a stronger rupee, which could reduce its customs revenue by Rs250 billion for the full financial year, including Rs180 billion for the rest of the period.
The IMF was informed that the FBR would hardly meet its targets of Rs 9.415 trillion if imports continue to remain in negative territory.
In the first four months, imports fell 18.5% to $17 billion. The average exchange rate in these four months remained at Rs 291 to a dollar compared to an average rate of Rs 299 in the first three months of the financial year, indicating a strengthening rupee.
Reading FBR asked to raise revenue to Rs15tr
However, in the last ten days, the rupee has been on a continuous decline, as expected due to the Pakistan-IMF talks.
The shortfall in customs revenue will also impact sales tax and collection of tax at source at the import stage, and hence, the FBR’s import taxes could reach Rs 560 billion, the sources said. The IMF has been told that this gap of Rs 560 billion will be covered by better performance in tax collection at the domestic stage.
In the first four months of this fiscal year, the FBR collected Rs 2.75 trillion in taxes, surpassing the four-month target by Rs 66 billion, despite a shortfall of Rs 69 billion in customs duties in just four months.
The IMF has been informed that against the annual target of Rs 1.324 trillion, duty collection may remain below Rs 1.1 trillion. The customs duty collection target of Rs 1.324 trillion had been set on the assumption of over $60 billion in imports.
The IMF asked about the robustness of domestic tax collection, to which authorities said they hoped to continue the momentum due to higher profits from commercial banks, better tax collection from the real estate sector and increased revenues from tobacco and beverages.
The sources said the government will now provide the IMF with a monthly revenue collection plan for November-June 2023-24.
After making an assessment, the IMF will inform Pakistan by the end of next week whether it needs to introduce a mini-budget to cover the gap or not.
A day earlier, the caretaker finance minister told a meeting that the annual tax collection target of 9.415 trillion rupees was low for the FBR for this fiscal year, representing a 31% increase over the actual collection of the previous fiscal year.
The finance minister urged the FBR to target a tax collection of Rs 15 trillion in the next financial year, claiming an 84% increase over this year’s projected collection of Rs 9.415 trillion.
Draft income tax returns
The FBR also informed the IMF about the progress in filing of annual income tax returns and the plan to further increase it. The Treasury was informed that the FBR received only 2.9 million tax returns, compared to 4.9 million returns filed in the last fiscal year.
The Fund was told returns were still higher by around 350,000 since October last year.
The FBR hopes to increase the number of filings to 6.5 million by June next year, representing a one-third increase over last year’s actual number, the sources said.
Their aim is to create regional tax offices to expand the base by shifting half of the taxing power in the regional tax offices to these new offices.
The Special Investment Facilitation Council (SIFC) has already set a target for the FBR to increase the tax base by at least one crore during the current financial year against last year’s figure of Rs 4.9 crore.
Earlier this week, the FBR chairman told The Express Tribune that the FBR will ensure mandatory tax registration of at least one million depositors based on withholding tax returns. In cases where people had paid Rs 15,000 to Rs 20,000 in withholding tax but did not file tax returns, the FBR would issue notices to them, he added.
Over 10 million individuals and companies are registered with the FBR, but 7.1 million, or 71%, did not file their annual returns. Last week, the FBR chairman said that based on existing demographics and legal provisions, the scope for increasing the tax base was limited to 10 to 15 million.
The sources said that the plan to issue a Presidential Decree to broaden the tax base has been withdrawn on the advice of the Law Department. Now, the FBR will notify new rules under the Income Tax Ordinance drawing powers from an existing legal clause that will make it mandatory for government agencies to share details of potential filers with the FBR.
The Express Tribune had reported last month that the FBR did not need any new law as 84 departments and entities were already sharing such details with the FBR.
Sources said that despite repeated claims, the National Database and Registration Authority (NADRA) did not share actionable data with the FBR with “indicative income” for these individuals. The information provided by NADRA did not include indicative revenue projections, closing this chapter on the matter.
Published in The Express Tribune, November 4u2023.
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