Pakistan’s tax collection efforts have missed a major target set by the International Monetary Fund (IMF) for the first half of the fiscal year. The country was expected to collect over Rs6 trillion in taxes by the end of December, but the Federal Board of Revenue (FBR) managed to gather only Rs5.623 trillion, falling short by Rs386 billion. Despite the shortfall, the FBR showed a solid 26% increase in tax collection compared to the previous year, although this was still below the required growth of 40%.
The IMF had set strict goals for Pakistan’s tax collection, and while the FBR made impressive strides with a 26% increase, it wasn’t enough to meet the IMF’s expectations. The government was also unable to raise the desired amount from traders under the Tajir Dost Scheme, missing the Rs23.4 billion target by a significant margin. This situation has led to growing concerns within the government, with the IMF possibly pushing for a mini-budget to make up the difference.
To meet the target, the FBR resorted to advanced collections, borrowing income from the upcoming months, particularly from the third quarter. On the last day of December, the FBR managed an extraordinary Rs277 billion in tax receipts, including Rs207 billion in income tax alone. While this was an exceptional effort, it raised concerns about the overall sustainability of these measures.
In terms of tax growth, the 26% increase was notable, especially when compared to the average inflation rate of 8%. However, experts pointed out that the government had relied on optimistic assumptions while setting its annual tax collection target, which now seems difficult to achieve without additional interventions. The FBR did manage to make significant refunds, paying Rs70 billion in December, which was double the amount from the previous year. Despite the shortfall, the FBR managed to increase the tax-to-GDP ratio to 10.8%, surpassing the IMF’s target of 10.6%.
The government, however, remains hopeful that the IMF program will continue and is planning to discuss the tax collection shortfall with the IMF in good faith. Finance Minister promises that the government is doing everything possible to meet the tax targets and is optimistic about continued support from the IMF. While some experts suggest asking the IMF to lower the tax collection targets, the government has not ruled out bringing a mini-budget to adjust the fiscal plans.
Although direct tax collection, including income tax, was on track, the country struggled to meet the targets for indirect taxes such as sales tax, federal excise duty (FED), and customs duties. For instance, the FBR collected Rs1.9 trillion in sales tax, which was a 25% increase from the previous year. However, it missed the sales tax target by Rs179 billion. Similarly, while the FBR exceeded the previous year’s FED collection by Rs82 billion, it fell short by Rs107 billion in meeting the target. Customs duty collection also faced challenges, with the target missed by Rs156 billion, despite an increase in collections.
The government’s efforts to raise funds through new taxes have put pressure on the salaried class and the corporate sector. The IMF had advised Pakistan to introduce new taxes, some of which were levied on everyday items such as vegetables, medical tests, and even children’s milk. While these taxes were intended to boost revenue, they were unpopular among the public and have led to growing concerns about their long-term impact on the economy.
In conclusion, while Pakistan’s tax collection efforts have shown growth, they have fallen short of the ambitious targets set by the IMF. With challenges in both direct and indirect tax collections, the government faces tough decisions ahead. Whether it involves negotiating lower targets with the IMF or introducing additional measures, the coming months will be crucial in determining the country’s fiscal stability.
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