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May 25, 2019

Govt in a fix how to up tax collection to Rs5,360 bn

Top Story

May 25, 2019

ISLAMABAD: The government is in catch-22 situation on fiscal front after striking staff level agreement with the IMF as the Fund asks Islamabad for jacking up tax to GDP ratio to 12.3 percent, equivalent to Rs5,360 billion tax collection target, for the next budget 2019-20.

The FBR is contemplating on different options including abolishing of tax exemptions in the range of Rs250 billion as well as raising GST rate from 17 to 18 percent, bringing more items into Excise Duty mode, reducing taxable limit for income tax ceiling from Rs1.2 million to Rs0.8 million, increasing tax rate on mobile packages, hiking taxation on tobacco and others to make next fiscal year target achievable.

The major exemptions that could be abolished including zero rating on five export oriented sector including leather, textile, carpets, surgical and sports goods and doing away with special mechanism of tax collection for steel sector. The government has estimated that it could collect Rs150 billion by doing away with tax exemptions on five export oriented sectors and steel industry.

But the problem arises about the ability of the FBR to materialise revenue collection in outgoing fiscal year as Finance Ministry estimated that the FBR could collect Rs4,241 billion or 11 percent of GDP but the FBR’s own assessment showed that its collection could touch Rs4,125 billion or 10.7 percent of GDP till end June 2019.

“We can go up to 1.3 percent of GDP equivalent to Rs5,230 billion or 12 percent of GDP in next financial year 2019-20 through abolishing of tax exemptions and raising tax rates,” top official sources said while talking to The News here on Friday.

Even after fresh amnesty scheme, it is not yet known that how much people availing themselves of this scheme would prefer to pay due amount along with declaration and how many would prefer to pay penalty for depositing tax amount in next fiscal year.

It will be quite hard for the tax machinery that materialised just 2 to 3 percent growth would be now assigned to achieve 30 percent growth in revenues in single year.

The FBR’s target will be set on the basis of nominal growth of 12.5 percent including real GDP growth rate of 4 percent and inflation target of 8.5 percent. Then the FBR will propose three to four options related to taxation measures for the next budget for presenting before the political masters to choose one or combination of measures that suits them politically to sell out to people of Pakistan.

“The next fiscal year on account of taxation measures will be tough for the politically elected government so efforts will be made to use innovative methods to bring more sector and areas into the tax system,” said one FBR official and added that the tax machinery would have no other choice but to propose taxation measures to net additional revenues in the range of Rs750 billion in the upcoming budget.

“The choices are limited,” they argued and maintained that the harmonisation of taxation among the Centre and provinces and some innovation would be required to jack up stagnant tax to GDP ratio over the next three years and its first phase would be implemented through upcoming budget for 2019-20.

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