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May 7, 2021

IMF approached: Pakistan wants to slash FBR’s collection target from Rs5.9tr to Rs5.5tr

ISLAMABAD: Pakistan has formally approached the IMF and asked for slashing down the FBR’s collection target from Rs5.9 trillion to Rs5.5 trillion maximum for the upcoming budget, keeping in view the prevalence of the third wave of Covid-19 pandemic.

The IMF had given the FBR the tax collection target of Rs5,963 billion for the upcoming budget 2021-22 against the downward revised target of Rs4,691 billion for the outgoing fiscal year in its latest staff report released after completion of the second to fifth reviews under $6 billion Extended Fund Facility (EFF) for Pakistan.

However, Pakistani authorities are arguing that there was a huge gap between the IMF’s envisaged target and potential of FBR for fixing the next fiscal year’s target. “It will not be possible for abolishing the GST exemptions related to agriculture and health because it will hike inflationary pressures and make the health sector expensive when the third wave of Covid-19 pandemic is gripping the country,” top official sources said.

With nominal growth of 12 to 12.5 percent, the FBR’s tax revenues could go up to Rs5,287.5 billion on the basis of revised tax collection of Rs4,700 billion for the outgoing fiscal year. With an improved administration and effective enforcement, the FBR could maximum increase its collection up to Rs200 billion, so the FBR could collect Rs5.5 trillion. If more measures are included, then its collection could be increased to Rs5.6 trillion. “However, the FBR’s target of Rs5,963 for upcoming budget is too much ambitious and cannot be materialized at all,” added the official.

When contacted, FBR’s Chairman Asim Ahmed on Thursday said that things were quite fluid, so it would be hard to predict at this stage what would be the target for the upcoming financial year. However, he said that the FBR would utilize technology to broaden the tax base and improve its tax collection, he added.

On the other hand, the IMF wants Pakistan to achieve key fiscal objective through broadening the tax base, reduce informality, and simplify and modernize the tax system. In this regard, the FBR plans to introduce a high-quality tax reforms package in the FY 2022 budget (of about 0.7 percent of GDP), based on the recommendations of previously provided technical assistance (TA). It builds on two pillars. The GST reform will broaden the GST tax base and harmonize the system between the federal and provincial governments. Specifically, it will eliminate nonstandard preferential rates and tax exemptions, and bring those goods to the standard rate of 17 percent, harmonize the service sales tax across provinces, in coordination with the World Bank and unify the current fragmentation with services subject to provincial taxation and goods under federal government taxation.

The authorities recognize that tax administration reforms and enforcement efforts need to complement their tax policy measures. When IMF resident chief in Pakistan Daban Teresa Sanchez was contacted for comments, she said that they stand ready to support Pakistan navigate the difficult Covid crisis while ensuring the objective of debt sustainability and strong and sustainable growth. As such, they are looking forward to their continued discussion with the Pakistani authorities when the times comes for the 6th Review, she concluded.