ISLAMABAD: The government under the contingency revenue measures agreed with the International Monetary Fund (IMF) that it would impose federal excise duty (FED) of Rs5 per kilogram on sugar, 18 percent sales tax on textiles/leathers (Tier-1) and raise withholding tax rates on certain transactions including contracts/supplies/services to generate additional revenue of Rs18 billion per month during 2023-24.
The annual revenue impact of these eight contingency revenue measures totaled at Rs 216 billion.
The IMF in its latest report, “First Review under the Standby Arrangement” revealed contingent revenue measures if the monthly cumulative FBR revenue falls short of the projected targets during 2023-24.
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The IMF report stated should cumulative monthly revenue significantly underperform, the government will, in consultation with the IMF staff, implement select measures:
(i) Raise the sales tax rate for textiles and leathers tier-1 from its reduced rate of 15 per cent to the standard rate of 18 per cent, expected collection of Rs 1 billion per month.
(ii) Implement a FED of Rs 5 per kilogram on sugar, expected collection of Rs 8 billion per month.
(iii) Increase advance income tax on import of machinery by 1 percentage point, expected collection of Rs2 billion per month.
(iv) Increase advance income tax on import of raw materials by industrial undertakings by 0.5 percentage points, expected collection of Rs2 billion per month.
(v) Increase advance income tax on import of raw materials by commercial importers by 1 percentage point, expected collection of Rs1 billion per month.
(vi) Increase withholding tax on supplies by 1 percentage, expected collection of Rs 1 billion per month.
(vii) Increase withholding tax on services by 1 percentage point, expected collection of Rs1.5 billion per month.
(viii) Increase withholding tax on contracts by 1 percentage point, expected collection of Rs1.5 billion per month.
Under the Memorandum of Economic and Financial Policies of this report, although the robust revenue performance in first quarter may mitigate some of this shortfall, achieving our primary deficit target hinges on the effective execution of all 2023-24 budget measures, as well as measures to expand the tax base, including issuing tax notification to more than 900,000 non-filers who have already been identified by the FBR. While internal taxes have performed better than anticipated, the government anticipates they will play a more significant role in FBR’s tax collection as the year progresses.
The government committed to monitor the performance of the FED, income tax, including the advance payments and the withholding taxes, and the expansion in the taxpayer base, providing the IMF team with timely monthly data on agreed performance indicators early in the following month. Should revenue fall short, the government will adopt appropriate corrective measures to ensure the targets are met.
Moreover, if the monthly cumulative FBR revenue falls short of the projected target by 1.5 per cent in second quarter, 0.5 per cent in third quarter or 0.1 per cent in fourth quarter, the government will evaluate the adoption of one or more of the contingency measures.
To enhance revenue administration, including the efficiency of the track and trace system, the government will strengthen our anti-smuggling efforts, the government will intensify the anti-smuggling campaigns and enhance checkpoint operations in the northern regions.
Furthermore, the outcome of the tax diagnosis slated for second quarter of 2023-24 will play a crucial role in identifying the necessary additional reforms to ensure the achievement of 2023-24 budget target, as well as establish significant increases in tax-to-GDP over the next year through increased taxation of under-taxed sectors (including retail, property, construction, and development, digital markets) and supportive administration efforts.
The tax authorities will also continue with structural fiscal reforms, especially revenue administration improvements to build capacity to expand the tax base and share the tax burden more widely. To facilitate information sharing with the FBR, we have amended the Income Tax Rules, 2022 to mandate 145 organisations to share information regularly with the FBR, and we will follow the legal procedure for its adoption. Simultaneously, in line with the IMF’s recent technical assistance (TA) to improve the FBR Compliance Risk Management (CRM) analytical capability, the government aim to build a team of staff with advanced data science skills to perform the CRM risk and analytics. The FBR also plan to incorporate predictive and descriptive analytics to fine-tune our CRM case selection procedures.
By December 2023, the government anticipates having an initial Risk Register in place and plan to develop Compliance Improvement Plans by March 2024. Moreover, in line with our digitalization plan, by December 2023, we plan to initiate pilot testing of the e-invoicing system.
In January 2024, the government plans to launch a scheme for door-to-door campaign in four provincial capitals and Islamabad, to register non-filing retailers and streamline their tax filing. By cross-referencing tax filings with electricity meter data, we will detect evasion and conduct audits when required. We will implement safeguards in the form of strict supervision through random audits of assessments filed under the scheme to verify correctness of valuations and payments. We will launch this scheme with least discretion for the field offices to alter valuations and assessments to protect the potential revenue raised from these actions.
To avoid double taxation, monthly advance tax payments under the scheme will offset final income tax liabilities at year-end at the time of return filing, but no refunds of such advance payments of taxes will be issued. Moreover, the government committed to provide the IMF team with timely monthly data on agreed performance indicators, the IMF report added.
Copyright Business Recorder, 2024
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