Islamabad:
The International Monetary Fund (IMF) on Friday asked Pakistan to immediately cut its spending from 163 billion to 183 billion rupees as it is not ready to compromise on its target of achieving a primary budget surplus this year despite a significant revenue shortfall.
The development came amid the government’s decision to appoint Ali Pervez Malik, a member of the National Assembly, as the minister of state for finance and revenue. Ali Malik belongs to a political family and is considered an unorthodox lawmaker.
Sources told The Express Tribune that during the first day of interactions, the IMF reiterated its old demand that there would be no compromise on the key target of a primary fiscal surplus of 0.4% of Gross Domestic Product or Rs 401 billion.
The issue came up for discussion on the first day of talks on the program after the Federal Board of Revenue (FBR) informed the global lender that it was facing a revenue shortfall of Rs 163 billion to Rs 183 billion for the current financial year ending June, the sources said.
A day earlier, the IMF team quietly landed in Pakistan – five days ahead of the date given by Finance Minister Muhammad Aurangzeb in his press conference in the presence of two other federal ministers.
The FBR has assured the IMF that it will try to recover Rs 20 billion to Rs 25 billion through administrative action under the Regulatory Ordinance Act 350. The SRO aims to prevent fraudulent or unjustified sales tax refunds and the FBR has already recovered Rs 2 billion from a company.
The FBR informed the IMF that direct tax collection was exceeding the target with a growth rate of over 40%. Despite the squeeze on imports, customs duties were also rising at a rate of 13%. However, the challenge arose from Rs 215 billion stuck in court cases.
Pakistan had earlier assured the IMF that the courts would decide these issues by April-May. However, the court process took longer and now the authorities have assured the lender that decisions may be announced as early as June.
The apex court also issued guidelines to high courts for timely disposal of tax related cases.
The petitioners have challenged the government’s move to impose excess tax, property tax and tax on windfall profits made by commercial banks. These measures were taken as part of the last budget. Of the additional tax measures of Rs 415 billion taken by the PDM government in the previous budget, almost half of them are now stuck in the courts.
The sources said that the IMF has asked Pakistan that to meet the revenue shortfall, there is a need to reduce expenditure by the same amount.
The government was already walking a tightrope and has very limited fiscal space to make room for spending cuts. The only window conveniently available was to reduce development spending.
In its latest staff report on the Stand-By Arrangement, the IMF said on Friday that to strengthen economic stability, strict adherence to the FY2024 target and further adjustment beyond FY24 while safeguarding growth needs and the social safety net, are essential to alleviate external and internal pressures and ensure fiscal sustainability.
He also stated that Pakistan remained committed to achieving a FY24 general government primary surplus of at least Rs 401 billion or 0.4% of GDP, which will require sustained effort.
The staff-level report highlighted that the annual FBR revenue targets remained unchanged at Rs 9.415 trillion, but there are risks of shortfalls in April and May 2024 due to holidays that will close ports and burden revenue collection.
The report said agreed contingency measures would be adopted in case collections fall short.
The report said that efforts to collect additional revenue from retailers have been delayed and challenges continue in the tobacco sector where, despite the mandatory implementation of monitoring and detection systems, smuggling and clandestine production continue despite efforts to curb informal production and of imports.
The FBR faces another challenge in the form of constant pressure from the government to recover its stuck revenue. The government has started punishing chief commissioners for the actions of lawyers seeking adjournments in tax cases.
As a result, lawyers started leaving FBR cases.
One of the senior FBR lawyers representing the board in the Supreme Court and high courts on Thursday refused to plead FBR cases related to the Central Excise Department Karachi due to constant pressure.
“Due to my busy schedule before the Supreme Court of Pakistan, I am not able to attend FBR cases simultaneously in the High Court and Supreme Court. I am repeatedly called by your subordinate office that I am not allowed to adjournment on any excuse as the Prime Minister of Pakistan has suspended a Chief Commissioner because an FBR counsel sought adjournment,” the lawyer wrote to the FBR.
He further stated that under such stressful circumstances, the pending Supreme Court cases, except a few specially assigned ones, should be handed over to some other counsel as the clash of time in the High Court and High Court cases was inevitable.
The FBR has already missed its 10-month tax collection target by a margin of Rs 52 billion. It could raise Rs 7.362 trillion against the target of Rs 7.414 trillion. The collection was Rs 15 billion less than even the FBR’s own expectations – a shortfall the government attributes to the slow-moving policy adopted by officers against the prime minister’s move to remove compromised and inefficient officials.
The FBR missed its monthly target by Rs 57 billion as it could only raise Rs 650 billion in April.
To plug the revenue shortfall and widen the tax base, the FBR on Friday also struck a deal with telecom companies. Chairman FBR held a meeting with Pakistan Telecommunication Authority (PTA) and telecom operators across Pakistan to ensure effective implementation of general order no.
Telecom operators have agreed to start the manual blocking process in small batches until their systems are fully equipped to automate it, according to a statement issued by the FBR. He added that the first batch comprising 5000 non-filers has been notified to the telecom operators today for compliance regarding SIM blocking.
The FBR had issued directions to block the SIM cards of half a million non-filers.
Telecom operators have also started sending messages to non-filers about SIM blocking for information purposes.
Published in The Express Tribune, May 11u2024.
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