IMF pressurising to increase revenue

ByAsrar Raouf

Former Civil Servent

Dated

June 19, 2022

IMF pressurising to increase revenue

Asrar Raouf points out to the difficulties faced by Pakistani financial managers

Despite being aware of the intense difficulties experienced by the people of Pakistan, the IMF pressurising to increase revenue is insisting for increase in revenue collection for meeting the financial requirements of the country. It is quite obvious that a heavily debt-ridden country like Pakistan cannot expect to be consistently bailed out of its financial woes by international financing institutions. The result is that IMF is impressing hard for bringing about structural changes in the economic system of the country that it considers are imperative and cannot be delayed any further. IMF is also emphasising that Pakistan should alter its habit of subsisting on foreign financial assistance and that could only be made possible when the entire lifestyle of the elites of Pakistan is changed and geared towards more realistic patterns of life. It also wants to shift Pakistan from loan-based entity to self-help basis that would transform the country.

In this context, the IMF is insisting that additional measures should be taken to bring at par the budgetary allocations to the line given by the IMF. The IMF emphasised that the Pakistani financial authorities are required to come clear on certain revenue and spending items and allow for a full assessment. The Fund added that their preliminary estimate is that additional measures will be needed to support the budgetary proposals. IMF is repeating its stance that such measures are required to bring in macroeconomic stability to the Pakistani finances. It clearly appears that what is inferred from additional measures is bringing about considerable addition in collecting revenues. It is also clear that the IMF wants revision of changes in the proposed Personal Income Tax (PIT) to make it progressive as the FBR proposed reducing number of slabs from 12 to 7 but the tax rates were reduced for salary earners up to Rs.1 million per month. The IMF has made it clear that the tax relief provision of Rs.47 billion is totally unacceptable to the IMF so the government will have to make changes in it.

It is important to mention that the FBR has already revised tax rates for seven slabs under PIT and shared with the IMF for removal of one major stumbling block in the way to striking staff-level agreement. FBR currently does intend to keep PIT slabs for salaried class intact at seven per cent but the rates might be adjusted. It was also disclosed in this context that the revised rates for different income slabs of the salaried class as the taxable ceiling up to Rs.1.2 million would remain exempted from the payment of income tax but there would be just payment of a token amount of Rs.100 where taxable income exceeds Rs.600,000 but does not exceed Rs.1,200,000. Under the revised plan, the FBR may increase its tax rate up to 10 per cent on the amount exceeding Rs.1,200,000 and where taxable ceiling exceeds Rs.2,400,000 but does not exceed Rs.3,600,000. Furthermore, the FBR has proposed Rs.84,000 plus 12.5 per cent of the amount exceeding Rs.2,400,000 with revising its rate by indicating that this slab rate will be increased up to 17.5 per cent.

On pension funds, it is reported that the IMF wanted to bring all kinds of pension’s payment and funds under the tax net. However, FBR insisted that it will not be feasible to bring pensioners into tax net due to rising inflationary pressures and ultimately IMF agreed that the gratuity amount up to 50 per cent of private sector would be taxed and its burden would be shared by the employer instead of the employees. Hard-pressed, the coalition government is left with no option but to levy additional taxes for the tune of Rs.740 billion and in this respect it intends to target commercial banks, real estate, retailers, foreign assets of Pakistanis, commercial importers and consumers of petroleum products. It is reported that out of Rs.740 billion, Rs.300 billion will be generated through the single largest measure pertaining to carrying out an increase in petroleum levy that would certainly increase inflation in the country that is already at an unprecedented high levels. The remaining Rs.440 billion is proposed to be collected by amending the tax laws, income tax ordinance, sales tax act, federal excise duty act and customs act. In this respect the government has proposed a target of Rs.7 trillion for the FBR registering an increase of nearly 17% or Rs.1 trillion on the expected collection of this fiscal year.

In addition, the government has slapped Rs.34 billion worth of customs duties in the budget but also gave Rs.6 billion relief and the net impact of the duties will be Rs.28 billion. A 2% Poverty Alleviation Tax has been slapped on high earnings of all those persons, including individuals and businesses, whose income is above Rs.300 million. This single measure will generate Rs.38 billion extra in the next fiscal year. Significantly, the government slapped Rs.53 billion additional taxes on banks by increasing their rates from 35% to 45% and on their investment in government securities. The increase in tax rate on banks from 39% to 45% will give Rs.28 billion while another Rs.25bn would be earned through adjustments in their advance to deposit ratios. In a major move, the government proposed increasing Capital Gains Tax rates on immovable property by expanding the threshold of exemption from four years to six aimed at generating Rs.40 billion extra revenues next year.

The government has proposed 5% deemed income tax on immoveable property aimed at generating Rs.30 billion revenue. The government has also targeted unutilised residential, commercial, industrial plots and farm houses through the levy. It increased the rate of advance tax on purchase of immovable property by non-filers of the income tax returns from existing 2% to 5% for Rs.20 billion more revenue. Similarly, it increased the rate of advance tax on purchase and sale of immovable property by the filer persons from existing 1% to 2% for Rs.45 billion additional revenues. In yet another important move, the government imposed 1% Capital Value Tax on foreign immovable properties of Pakistani residents as well as their liquid foreign assets to fetch Rs.18bn more revenues. The small-and medium-sized retailers have also been decisively targeted but through indirect means. In order to collect Rs.30 billion more from them, the government has slapped fixed tax through their electricity bills.

The FBR also proposed to get powers to impose Rs.50,000 per month for a special class of retailers like car dealers, sellers of precious watches as final tax liability on income and sales tax. In addition the government imposed 1% income tax on debit and credit cards transactions being conducted with foreign suppliers, originating from Pakistan or during foreign travel. The government also targeted Private Funded Gratuity and Pension Schemes to collect Rs.10 billion more to meet a condition by the IMF. The government increased the excise duty rates on cigarettes to get Rs.10bn more and also increased FED on international business class tickets from Rs.10,000 to Rs.50,000 per ticket. FED on telecommunication services has been increased from 16% to 19.5%. TW

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