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Govt likely to set tax collection target of over Rs9 trillion for FY24

By Our Correspondent
June 04, 2023

KARACHI: The government is expected to set a tax revenue collection target of Rs9-9.2 trillion for the fiscal year 2024, up 21 percent from the target of Rs7.5 trillion set for the current fiscal year, a budget preview report by Topline Securities stated on Saturday. If set, the tax target for the financial year 2023-24 would be 29 percent higher than the expected tax collection in FY23. The brokerage said it’s a challenging time for the government to present a budget for the next year amid stagflation and uncertainties related to upcoming elections and how Pakistan would bridge its external account funding gap.

“This uncertainty on financing USD funding gap is creating nervousness in currency, bond, and stock markets,” the report said. Revenue targets in the past have also varied on an average by 8 percent in last 5 years from actual. “We expect the same to happen in FY24 amid economic slowdown,” it added. Non-tax revenue target for FY24 was estimated at Rs2.5 trillion (2.4 percent of GDP) as against Rs1.6 trillion (2 percent of GDP) estimated for FY23. The report predicted some taxation measures by the government, including tax on undistributed reserves, continuation of super tax, shift from final tax regime to minimum tax regime, asset/wealth tax, higher tax on non-filers, tax on rental income, and tax on banks, tobacco, and beverages. It expects Federal Public Sector Development Program (PSDP), development spending, of Rs0.9 trillion for FY24.

“We may see major cuts in this due to fiscal constraints. Consolidated PSDP (federal and provincial) is anticipated to clock in at Rs2.6 trillion (2.5 percent of GDP) in FY24.”On the political front with Imran Khan's PTI being sidelined, “It is possible that a weak coalition government may come to power in elections. It will be interesting to see how aggressive and competent the new setup will be to deal with this economic crisis,” it said.

“To create good optics, it is possible that the government may set an unrealistic revenue target to create space for spending in the budget.”

According to the report, it seems unlikely that the government will be able to complete the current IMF programme on time. Regardless of the status of the current IMF programme, Pakistan would have to enter another and bigger IMF programme, it urged.

“The government is under immense political pressure due to an economic slowdown and high inflation and could take steps to appease the public in the upcoming budget through some sort of expansionary policies, including direct cash subsidies for the underprivileged and increase in minimum wages.”

Any excessive spending would be ill-advised without substantial tax collection measures, the brokerage warned.The report estimated budget outlay for FY24 at Rs13-15 trillion as against Rs9.6 trillion proposed for FY23, assuming record high mark up cost due to high interest rate.

The upcoming budget could be neutral to positive for the stock market, and neutral for sectors such as oil and gas exploration, chemicals, pharmaceuticals, consumers, tobacco, technology and communication, textile, cement, fertilisers, and oil marketing companies, according to the research.On other hand, the budget might be neutral to negative for banks and autos while neutral to positive for steel and independent power producers, the report stated.