FBR cautions IMF about Rs9.4tr tax target
ISLAMABAD: Pakistan shared a plan with the International Monetary Fund (IMF) on Friday to increase the number of income tax return filers to 6.5 million by June next year, but cautioned the lender about potential risks to the Rs9.4 trillion target from a stronger rupee coupled with low imports.
The tax authorities provided a briefing to the visiting IMF team regarding revenue performance during the first four months of this fiscal year and the outlook for achieving the annual target in the remainder period, according to government sources.
They added that the IMF was informed that the Federal Board of Revenue (FBR) would try to reach the target of Rs9.415 trillion, but the challenges remain. The annual target faces risks from low imports and a stronger rupee, which could dent its customs revenues by Rs250 billion for the entire fiscal year, including Rs180 billion in the remainder period.
The IMF was informed that the FBR would hardly achieve its Rs9.415 trillion targets if imports continue to remain in the negative territory.
During the first four months, imports fell 18.5% to $17 billion. The average exchange rate in these four months remained at Rs291 to a dollar compared to an average rate of Rs299 during the first three months of the fiscal year, indicating a strengthening of the rupee.
However, over the past ten days, the rupee has been on a continuous downward sliding path, as expected due to Pak-IMF talks.
The shortfall in customs revenues will also have implications for sales tax and withholding tax collection at the import stage, and as a result, the FBR’s import taxes could take a hit of Rs560 billion, said the sources. The IMF was informed that this gap of Rs560 billion would be covered by better performance in the collection of taxes at the domestic stage.
During the first four months of this fiscal year, the FBR collected Rs2.75 trillion in taxes, exceeding the four-month target by Rs66 billion despite a shortfall of Rs69 billion in custom duties in just four months.
The IMF was informed that as against the annual target of Rs1.324 trillion, the custom duties collection might remain below Rs1.1 trillion. The Rs1.324 trillion custom duty collection target had been set based on an assumption of over $60 billion in imports.
The IMF inquired about the robustness of domestic tax collection, to which the authorities replied that they were hopeful to continue the momentum on the back of higher profits by commercial banks, better collection of taxes from the real estate sector, and increased revenues from tobacco and beverages.
The sources said that the government will now provide the IMF with a month-wise plan of revenue collection for the November-June 2023-24 period.
After making an assessment, the IMF will inform Pakistan by the end of next week whether it needs to bring in a mini-budget to cover the gap or not.
A day earlier, the interim finance minister mentioned in a meeting that the Rs9.415 trillion annual tax collection target was low for the FBR for this fiscal year, representing a 31% increase over the previous fiscal year’s actual collection.
The finance minister urged the FBR to aim for a tax collection of Rs15 trillion in the next fiscal year, requiring an 84% growth over this year’s projected collection of Rs9.415 trillion.
Income tax returns plan
The FBR also briefed the IMF about progress in filing annual income tax returns and the plan to increase it further. The Fund was told that the FBR received only 2.9 million tax returns, compared to 4.9 million returns filed in the last tax year.
The Fund was told that returns were still higher by around 350,000 than October last year.
The FBR is hopeful to increase the number of filers to 6.5 million by June next year, representing a one-third surge over last year’s actual figure, said the sources.
They aim to set up district tax offices to expand the base by shifting half of the tax force in the regional tax offices to these new offices.
The Special Investment Facilitation Council (SIFC) has already given a target to the FBR to increase the tax base by at least one million during the current fiscal year over last year’s figure of 4.9 million.
Earlier this week, the FBR chairman told Daily City news that the FBR would ensure the compulsory tax registration of at least one million filers based on their withholding tax statements. In cases where people had paid Rs15,000 to Rs20,000 in withholding taxes but did not file tax returns, the FBR would serve them notices, 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 stated that, based on the existing demographics and legal provisions, the potential to increase the tax base was limited to 10 million to 15 million.
The sources said that the plan to promulgate a Presidential Ordinance for broadening the tax base has been shelved on the advice of the Law Division. Now, the FBR will notify new rules under the Income Tax Ordinance by deriving powers from an existing legal clause to make it binding for government departments to share the details of potential filers with the FBR.
Daily City news 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 income projections, closing this chapter on the matter.