IMF team looks at fiscal performance

ISLAMABAD: The Federal Board of Revenue (FBR), Monday, briefed the International Monetary Fund (IMF) on the revenue collection position for the fiscal year (2024-25), Tajir Dost Scheme and the strategy to overcome the expected shortfall of Rs230 billion in the second quarter (October-December) of the current fiscal year.

Sources told Business Recorder here on Monday that the FBR and IMF teams, started meetings on revenue potential, enforcement measures, retailers registration and reforms/measures to broaden the tax base.

In this regard, a detailed meeting was held between the IMF team and the FBR chairman, the FBR Member of Inland Revenue (Policy), and other senior tax officials of the Board.

IMF team to check progress on EFF shortly

The FBR chairman shared short-term and long-term measures to reduce anticipated shortfall of over Rs230 billion in the second quarter (October-December) 2024-25.

The IMF staff led by Nathan Porter, is likely to meet the finance minister on Tuesday (today), official sources revealed.

The Fund’s staff is currently visiting Pakistan to discuss recent developments and Extended Fund Facility (EFF) programme performance to date. This mission was not part of the first review under the $7 billion EFF, which will be no earlier than the first quarter of 2025.

The finance minister last week stated that the Fund’s staff was visiting Pakistan for stock-taking of the $7 billion EFF programme. The government has exceeded the IMF target for bringing traders and shopkeepers into the tax net and collected Rs10 billion in taxes in the first quarter. The amount of Rs10 billion included the additional tax collected from supplies made to un-registered shopkeepers.

The FBR will now register big retailers and shopkeepers/traders on the basis of analysis of returns, data security and commercial electricity consumption data by suspending existing policy of fixed tax per shop/retail outlet.

One of the key features of the revised policy is that the registration of big shops would be done based on credible information of concealment/evasion and not physical surveys of the shops. The door-to-door surveys of markets would not be carried out. The collection of fixed amount of tax from each shop, irrespective of size, would not be done under the revised policy.

The FBR has informed the IMF that tax machinery has collected Rs877 billion during October 2024 against an assigned target of Rs980 billion, reflecting a shortfall of Rs103 billion.

The FBR has collected Rs3,440 billion during first four months of 2024-25 against the assigned target of Rs3,636 billion set for July-October of current fiscal year, reflecting a shortfall of Rs196 billion.

The FBR has informed the IMF that the economic assumptions including GDP growth, imports, inflation and growth in large-scale manufacturing, used for setting the tax collection target for 2024-25 have been changed. Therefore, short-term and long-term measures have been finalised to tackle the expected shortfall in tax collection in the remaining period of 2024-25.

There were assumptions that the policy measures in shape of raising tax rates would generate Rs1,190 billion, enforcement measures Rs320 billion, Rs50 billion through retailers’ scheme, materialising revenues from Sindh and import plus LSM growth was projected to yield Rs2,047 billion. With changed macroeconomic numbers, the FBR had to face a shortfall on sales tax at import stage by Rs147 billion during July-September (2024-25). The income tax collection has gone up to Rs1,230 billion against the set target of Rs1,098 billion for the first quarter of 2024-25.

The FBR has finalised a new plan for issuance of notices to un-registered rich persons. Over 0.19 million individuals (high-net worth individuals) have been identified with third party data and notices are being issued to them.

The FBR has estimated tax liability of Rs7 billion to be recovered from these non-filers. The tracking of these non-filers would be done through dedicated dashboard of FBR. It is expected that the FBR will pursue 50,000 non-filers and subsequently, issuance of assessment order in 25,000 cases.

Under the contingency revenue measures the government has agreed to increase federal excise duty (FED) on aerated/sugary drinks and raise withholding tax rates on the import of machinery/raw materials and contracts/supplies/services to generate additional revenue of Rs10.8 billion per month during 2024-25.

The revenue impact of these seven contingency revenue measures is projected at Rs97.2 billion in the remaining three quarters (October-June) of 2024-25.

The IMF in its last report stated should the 3-month rolling average revenue collection fall short of the projected target by one per cent, in consultation with the IMF staff, the government will evaluate the adoption of one or more of the following contingency measures: (i) Increase advance income tax on import of machinery by one percentage point, expected collection of Rs2 billion per month; (ii) Increase advance income tax on import of raw materials by industrial undertakings by one percentage point, expected collection of Rs3.5 billion per month; (iii) Increase advance income tax on import of raw materials by commercial importers by one percentage point, expected collection of Rs1 billion per month; (iv) Increase withholding tax on supplies by one per cent, expected collection of Rs1 billion per month; (v) Increase withholding tax on services by one percentage point, expected collection of Rs0.5 billion per month; (vi) Increase withholding tax on contracts by one percentage point, expected collection of Rs0.5 billion per month; (vii) Increase FED on aerated and sugary drinks by five percentage point, expected collection Rs2.3 billion per month.

Copyright Business Recorder, 2024