Pakistan has informed the International Monetary Fund (IMF) that it plans to impose an indicative income tax on retailers with the aim of raising their contribution from Rs100 billion to Rs200 billion annually.
Tax authorities have shared broader outlines of the proposal with the IMF, which the caretaker government wants to implement with effect from January next year, according to government sources.
No specific collection amount has been shared
the IMF, but the assessment shows that about an additional Rs 9 to 20 billion a month can be collected from retailers through a flat tax on shops, they said.
The Federal Board of Revenue (FBR) has proposed that the tax be collected by district tax collectors and not through electricity bills, which are already very high.
The tax has not been proposed in any particular
The IMF’s demand is likely aimed at increasing the tax contribution from one of the highly undertaxed sectors, they added.
The government wants to use the indicative income of retailers, based on the location of their stores and rent payments, to estimate the tax potential. The wholesale and retail sectors have about a 19% share in the economy but their contribution to total taxes is less than 1%.
Should the proposal be vetted for enforcement, the government would not need new legislation. The authorities have proposed to exercise the statutory powers available under Section 99B of the Revenue
Section 99B sets out special procedures for minors
merchants and shopkeepers. Authorizes the finance minister to levy tax by notification in the Official Gazette.
It is yet to be decided whether the tax will be collected across the country or levied in the first phase in major cities where the FBR has some idea of the income of retailers.
The FBR currently collects withholding taxes from properties, based on local property valuations.
The previous Pakistan Democratic Movement (PDM) government had imposed a tax of Rs 3,000 to Rs 10,000 per month on retailers in the June 2022 budget, but withdrew it within two months, bowing to pressure from traders. The only window that
the FBR has to impose the tax before the February 8 general elections.
All major political parties and military leaders have in the past surrendered to the retailer shutdown power.
At present, retailers pay 5% tax on monthly electricity bills up to Rs 20,000 and 7.5% on bills above Rs 20,000. There are more than 4 million registered retailers, but very few pay tax.
Sources said the fixed monthly tax can be adjusted in annual income tax returns if retailers want to pay the tax based on normal income
The IMF has not given its final assessment of the retailers’ plan.
The Special Investment Facilitation Council (SIFC) also receives updates from the FBR on its major efforts to widen the tax base and plug loopholes. In the next SIFC meeting, the FBR is expected to brief the politico-military body on the progress in implementing the monitoring and tracking system and its extension to the sugar and fertilizer sectors.
The FBR will also update the forum on the progress in broadening the tax base with the help of the National Database and Registration Authority (NADRA). He found the NADRA data useless as the authority cannot predict the indicative income of potential taxpayers.
Sources said the IMF has yet to share any demand for a mini-budget and
The FBR hoped to meet its annual tax target of Rs 9.415 trillion.
“If there is any demand for additional fiscal measures, it will not be because of the FBR but because of expenditure overruns,” a government official said.
The FBR also informed the IMF about the progress in information sharing between banks and the FBR in cases related to public office holders and public servants. The IMF was told that banks raised questions on 15 occasions this year.
Privatization Minister Fawad Hassan Fawad also met with an IMF delegation on Thursday and briefed them on progress in the privatization programme.
The privatization ministry is actively pursuing the privatization of Pakistan International Airlines (PIA). The minister said there was no discussion of specific deadlines related to privatization with the IMF.
He is scheduled to brief the SIFC on the privatization of PIA with milestones and the potential sale of two LNG-fired power plants. The ministry is in the process of hiring a financial consultant to prepare the structure of PIA’s privatization, demerger and debt restructuring.
The civil-military body will be briefed on the status of private sector participation and management control of electricity distribution companies.
SIFC will also be briefed on options available for the sale of two LNG units, the projects in focus.
Pakistan’s Ministry of Planning and Bureau of Statistics have informed the IMF of their plans to release quarterly economic growth data. The Fund was informed that Pakistan will announce its first quarter GDP growth rate by the end of this month.
In the third week of November, a meeting of the National Accounts Committee is expected to be convened to approve the data for the July-September period.
The quarterly national accounts will be released with effect from the financial year 2015-16, the IMF said.
Published in The Express Tribune, November 10u2023.
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