More taxes to be levied if revenue less than Rs9.4tr, Pakistan tells IMF

ISLAMABAD: The government is committed to taking additional taxation measures if revenue collection falls short of achieving the fixed target of Rs9.415 trillion for FY2024.

The measures agreed with the IMF include raising the GST rate for textiles and leathers tier-1 from its reduced rate of 15 percent to the standard rate of 18 percent, expected collection of Rs1 billion per month; (ii) implement a FED of Rs5 per kilogram on sugar, expected collection of Rs8 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 Rs1 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

In the staff report under $3 billion Standby Arrangement (SBA) programme for Pakistan, the IMF made it clear the broad-based reforms to improve the fiscal framework remain essential. The Pakistani authorities are advancing reforms to lay out a tax policy agenda to raise additional revenue, including from currently undertaxed sectors, alongside supportive administration reforms. These efforts are being supported by an IMF tax diagnostic exercise to shape the agenda for future reforms. In addition, the (Pakistani) authorities are advancing efforts to: (i) adopt a documentation law, currently in the final stages of legal procedures for adoption, which mandates 145 organisations to regularly share information with the FBR; (ii) establish a Compliance Risk Management team within the FBR focused on comprehensive risk analysis and analytics; (iii) implement the e-invoicing system, scheduled for December 2023; and (iv) launch a door-to-door campaign in four provincial capitals and Islamabad to register non-filing retailers. It would streamline tax filling processes and significantly expand the tax base. The government will be strengthening revenue collection to ensure alignment with FY24 budget. To achieve this, the FBR has commenced bringing 900,000 identified non-filers into the tax net.

The FBR was to issue initial notifications to these taxpayers by mid-December. It has established a monitoring system to track the yield of this operation with corrective measures planned should collections fall short. Further reforms to enhance revenue administration, including anti-smuggling efforts and close monitoring of track and trace system, are also underway. Finally, should revenue fall short in FY24, the authorities have identified several contingent measures that can be adopted, the Pakistani authorities assured the IMF.