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ISLAMABAD: The road to an International Monetary Fund (IMF) bailout is going to be a steep one for the government in the months ahead.
According to a source with direct and detailed knowledge of the matter, the Fund has asked for Rs160 billion worth of new tax measures in the current fiscal year, which ends in June 2019, in order to stabilise the fiscal framework.
The Federal Board of Revenue (FBR) calculates that the 1.1 per cent increase alone means Rs400-500bn additional tax revenue measures. If undertaken, the steps will lift the country’s tax-to-GDP ratio to 13.9pc by end June 2021. The government has set a fiscal deficit target of 5.6pc for 2018-19 whereas the IMF’s projection is slightly below this.
The emphasis on a revenue target is a departure from standard practice for IMF. Previous Fund programmes were built around a fiscal deficit target, and it was left to the government to decide how it was going to be achieved — through some combination of revenue increases and expenditure cuts.
Programme unlikely before February; Rs160bn fresh taxes before June
This time IMF is laying out specific revenue targets for each year of the proposed programme and is asking the government to commit to raising the tax-to-GDP ratio by 0.4pc of GDP by June 2019, followed by 1.1pc in FY20 and 1.2pc in FY21.
In addition to these revenue measures, the Fund has also asked for concomitant increases in provincial revenues, from current 1.1pc of GDP to 1.5pc by end of the programme. This means that provinces will also have to introduce new revenue streams.
According to earlier reports, the tax machinery has already asked the finance ministry to approach the Supreme Court to find a way to restore taxes on prepaid mobile cards. The annual collection from these taxes on prepaid cards alone is around Rs80bn, which can help plug half of the revenue demand for the first year of the programme.
In another proposal, the FBR has proposed to fix sales tax on petroleum products by volume instead of as a percentage of the price, starting from January. According to the board, petroleum products prices in Pakistan are on the lower side as compared to the regional countries. The FBR admits the new price mechanism may lead to oil price increase but justifies it on the plea to raise additional revenue and also to control its consumption.
These two measures, according to the source, could generate around Rs100bn for the government kitty. These, however, still leave the government with Rs60bn gap before June and will necessitate further tax measures.
The government is looking to tax luxury consumption for higher income earners in an effort to meet the IMF’s condition. Moreover, FBR is expecting to raise around Rs30bn alone from sales tax evasion in the next half year of 2018-19. The source suggested that the steep revenue increases demanded by the Fund are the lead reason why the government is having difficulty finalising the IMF programme.
Another source in the Finance Division told Dawn that talks are still continuing with the IMF through video conferencing. “We have suggested to share proposals next week with the Fund before the Christmas and new year holidays.” the finance official said.
“We are expecting to reach an understanding in January.” However, the source said the IMF package will not go to the board until February or March.
The focus of the IMF programme is now only on revenue generation. There is no demand for a cut in expenditures in the ongoing fiscal year, the source added.
The IMF’s resident representative in Pakistan, Teresa Daban Sanchez, when reached for comment did not confirm or deny the numbers, but said a fiscal consolidation is required and that “the policies have to be on the revenue side.”
Published in Dawn, December 16th, 2018
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Comments (64) Closed
Dec 16, 2018 09:05am
Despite huge taxes, govt want to increase tax revenue by imposing more taxes is not justified. Government need to take strict measures for the collection of the already imposed taxes to increase her revenue. Around .02 pc of total population and in .6 pc awarded commercial units are paying their taxes. Imposing new taxes will put burden on these .02 pc.
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Dec 16, 2018 09:12am
Why not tax big zmindars who owns hundreds of acres of agriculture land and living luxurious life beside hiding non agriculture income by showing it income from agriculture.
Post Excise and Land custom staff at all big stores and restaurants to monitor sales and income.Thousands of people will get job beside big increase in revenue.
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Dec 16, 2018 09:17am
Devaluation, inflation, loans and now more taxes!
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Dec 16, 2018 09:19am
More revenue is absolutely necessary whether Imran Khan recognizes this or he doesn't. Foreign Bailouts from the Saudis, China and the IMF are only temporary fixes. They cannot sustain the country.
Pakistan must collect taxes from them with the money. Raising tariffs on imports is another necessary step. ... Pakistanis must create new industry and jobs just to keep the burgeoning population's heads above water. The rupee has not seen the lows it could descend to.
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Dec 16, 2018 09:25am
Why not increase the tax on cigarettes? It would generate the most revenue.
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Dec 16, 2018 09:33am
Let's boycott all the taxes and utility bills. Government needs to realize the power of common man. Let's stop paying for trains buses tickets, electricity bills, or taxes and show them that enough is enough
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Dec 16, 2018 09:33am
Apply taxes on making nonsensical comments. All your financial problems will vanish within 2 months.
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Dec 16, 2018 09:43am
There will be another IMF conditions at the behest of US, once the demand is implemented, so that the loan cannot be lend.
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Dec 16, 2018 09:49am
Lets collect more taxes from the rich and those who are not paying it.tax on phone credit will be better.Lets implement it again
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Dec 16, 2018 09:51am
When governing body inefficient to handle financial crisis IMF dictates the terms and conditions to sanction loans ,but is a good sign for development.
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Dec 16, 2018 09:55am
Government 101 basics: you have to have revenues to pay for expenditure.
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Dec 16, 2018 09:55am
On one point they talk about wealth creation and on other point they want to impose more taxes. How can it go hand in hand ?
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Dec 16, 2018 10:19am
160 Billion of additional revenue won't be much of a problem with improved tax collection measures and some targeted increases. I think the economy can handle that very easily.
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Dec 16, 2018 10:30am
I agree with Mian Shahid that Pakistan needs to bring the general population in the tax fold. Increase the collection of income taxes from mere .02 and .06 percent to 5 percent. This can be done through education , advertisement and enforcement by FBR.
The other measure it can take is eliminating higher currency bills, it will reduce the cash economy and most transactions will be done by writing checks or credit or debit cards. Banks can track these transactions and are subject to tax.
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Dec 16, 2018 10:35am
Mian Shahid, you are absolutely right taking strict measures to collect the income tax would be a great idea rather then increasing more incomtax.I think pakistan has huge under ground economy try to tightened that.
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Dec 16, 2018 10:41am
Pakistan should drastically cut down Defence Expenditure to bring down Fiscal deficit rather than TAXING POOR.
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Dec 16, 2018 10:52am
The government should increase the number of taxpayers and not the taxes on poor Pakistanis. Millions of low to medium size businesses are not even registered in. Like all over the world every citizen is registered and file a tax return. The income tax is charged according to the tax schedule. There is no such thing as non-filers. he or she does not pay taxes, but filing is mandatory. Asad Umar claims to be chief executive in an American company does not know how to formulate the tax law.
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Dec 16, 2018 10:53am
Not a very large amount fbr can easily do this by imposing tax on following big fishes
Property dealers and real estate developers
Money makers in educational and private hospitals
Money makers in car sale and purchase
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Dec 16, 2018 10:56am
What about the IMF demand of floating exchange rate?
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Dec 16, 2018 10:59am
@Mian Shahid , it’s purely up to the government how to increase tax revenue. They are supposed to submit a plan. Ageeed ot could be done by increasing current taxes or increasing the base. I think the governments will is short on increasing the base and enforcement leaving only increase in indirect taxation as an option. IMF is rightly only concerned with increased revenue whatever the source or the plan.
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Dec 16, 2018 11:00am
They need to broaden the tax net and go after the big fishes. Fixing FBR is the only solution.
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Dec 16, 2018 11:15am
Why not tax on retail sector. Millions of shops in all over the country yet they contribute a tiny share in direct income taxes. I heared Mr. Shaukat Tareen in a television interview once he was finance minister. He said retail sector contributes only 70 million in entire income tax collection in a year
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Dec 16, 2018 11:52am
Best thing is to avoid paying bills for power, wager and gas. Let government print new notes and feed the poor of the nation.
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Dec 16, 2018 12:00pm
In 2015 Khan's assets were valued ₨1.33 billion (US$13 million) and still Khan paid just ₨76,200 (US$720) of tax in 2015 and ₨1.59 lakh (US$1,500) in 2016, something does not add up.
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Dec 16, 2018 12:54pm
Imf conditions are pretty simple and same for all countries. They tell governments to live within their means. Since despite big talks of austerity it is not possible to reduce government expenses only option left is to increase taxes.
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Dec 16, 2018 01:07pm
Until and unless government will not prepare and impose taxes on agriculturalist, large farmland owners, they will not survive.
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Dec 16, 2018 01:17pm
@Alien1, most often taxes are on INCOME, not assets.
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Dec 16, 2018 01:45pm
@Kamal, All to fix what was left behind by Nawaz the genius.
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Dec 16, 2018 01:46pm
Ensure energy to exported oriented industries and triple the export.
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Dec 16, 2018 01:59pm
@ajay, Good idea!
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Dec 16, 2018 02:01pm
Every earner in Pakistan should be taxed with 2½% of his/her income. No exemption or allowance should be given for this basic tax. To start with, and to facilitate the working person, the government should raise below 16 grade salaries by 2½% and ask all the private entities to do the same so that the tax payer doesn't feel the extra burden. The employer should be tasked to collect this tax and pay to the state. Even households who employ domestic workers should be made to pay this basic tax on behalf of their workers. This is exactly what Scandinavian countries do where a basic 8% is paid before applying any allowances and entering the national tax regime.
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Dec 16, 2018 02:28pm
The IMF is saying the obvious. Expenditure is more than income. Therefore to remedy you need to increase the tax base.
Most people including the wealthy avoid paying tax and that needs to end.
However it needs to be done in a way that the poor do not end taking the most burden.
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Dec 16, 2018 02:44pm
Where you can get more and regular tax?
1. Food items
2. Petrol
3. Electricity
4. Telephone/ Mobile calls
5. Clothes
6. Stamp duty on registration
7. Every acre of land Rupees 1000 per year etc.
People can not escape, they have to pay but you will not win next election.
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Dec 16, 2018 02:47pm
Govt.want to achieve target by levying indirect tax...
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Dec 16, 2018 03:39pm
When the IMF close will be achieved? Can it ever achieved? Is this the last thing that we want to achieve? Do we not need to move forward? Life is moving. It don't wait for any one. I don't know PTI agenda of different period but one thing is sure uncertainty prevailing due to uncertainty of IMF package. One does hope for the sake of country that best possible decision will be taken regarding timing of IMF package
.
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Dec 16, 2018 04:16pm
@Fazal Karim, the question you asked is equivalent to, who will bell the cat? These rich land lords are the law makers and have done all they can to milk the country dry, at the cost of common hard working people. Why will they tax themselves? Imran Khan with all his good intentions will need these very same rich people's help in introducing the taxation law. Your guess is as good as mine.
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Dec 16, 2018 04:29pm
take back money from zardari and nawaz family. problem solved.
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Dec 16, 2018 04:32pm
@Mian Shahid , There is confusion in your mind about the word 'taxes.' Here what they mean is indirect taxes, which are levied on the entire population. The taxes you are talking about is direct income tax, which is paid by those who have taxable incomes, and are evaded by many though the percentage you quote is far less than actual. The claim by governments that the people don't pay taxes is wrong, even malicious. people of Pakistan are already paying back-breaking taxes and they are indirect taxes levied on almost everything except on the air we breathe. The direct taxes such as on income are also less than what they should be, the sole reason for which is the corruption of the FBR officials and their acting in connivance with the large companies and corporations. In fact the whole taxation system needs to be revamped and strict check maintained on the FBR officials.
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Dec 16, 2018 05:30pm
New taxes without creation of wealth is a recipe for disaster.
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Dec 16, 2018 05:47pm
Imf recommendations should be implemented. This will definitely move the nation out of disaster.
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Dec 16, 2018 06:00pm
Pakistan would gain immensely by increasing its tax base boosting its frail economy. India has achieved it under the present govt increasing the income tax returns by 80% in the span of last four years through strict compliance.
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Dec 16, 2018 06:13pm
Govt can easily collect 160 billion RS by simple steps like custom duty on every container at Karachi sea port,collecting taxes from those business men and landlords whose expenditures can easily be verified by tracking cnic no like bank transaction, credit card ,foreign travels,sir leave ngs educational expenses ect
Property dealers selling one kanal plot @3 crore but showing only 30 lacs as deputy commissioner price
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Dec 16, 2018 06:32pm
Rather than following IMF agenda better to focus on increasing export, reducing imports, local production, better governance.
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Dec 16, 2018 07:19pm
Instead of blaming IMF, put the blame on the past governments. This will buy more time.
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Dec 16, 2018 07:27pm
@Fazal Karim,Though your suggestions are prudently clear & make sense but impractical to implement.The main reason being, to bring major changes in the tax collection regime, such bills have to be passed through the parliament. Do you in your mind expect those very rich feudals,holding vast agriculral lands, sugar mills & other paraphernalia, while sitting there as people representatives, allow passing such laws, making them pay tax on free water, or agriculture produce?
Seeing this arduous task to accomplish,FBR, as always, tries to find an easy way out, by levying taxes on those already in the net.This approach of proposed means of collection taxes to meet IMF current & future demands,is counterproductive as such tactics have proved to be a failure in the past.
The Present govt. must take a prudent & perennial solution to plugin theft in collection of taxes, bringing non taxpayers into the net through incentive schemes, & complete documentation of economy on war footing w/o delay
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Dec 16, 2018 07:43pm
Most of the people commenting here have no idea of what they are talking about. Some people are even blaming Govt. - this is what IMF is asking genius ppl Govt have not proposed of accepted them as of now :D
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Dec 16, 2018 08:07pm
What else could IMF do but to adhere to their 73 years old policy of intimidation, coercion, bullying and forcing the host nation to dance to their tunes and music?
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Dec 16, 2018 08:48pm
@Dr. Salaria, Aamir Ahmad, cancel the talks if you don't agree to their conditions.
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Dec 16, 2018 08:50pm
Instead of taxing the poor middle class. Divide the funds required into 4 parts:
1. Increase the circle values of the properties and collect 25% of the target amount as additional registration fee;
2. Collect 25% from Air travelers
3. Collect 25% from Importers of Luxary and costly items and sale of gold
4. Ask the government officials to collect the balance 25% by better administration and achieving targets.
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Dec 16, 2018 08:52pm
@Mian Shahid , Pakistan one of the lowest tex collection nation. They need do pay off taxes so the govt could run and so its job
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Dec 16, 2018 09:57pm
Dump IMF.
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Dec 16, 2018 10:08pm
Tax the service sector that is currently not in tax bracket, and tax luxury cars that are higher than 1300 cc at a higher rate, increase tax net on property tax especially in affluent neighborhoods , increase duty on imported goods such as cars, edibles, etc that are locally manufactured.
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Dec 16, 2018 10:13pm
@Maboob Saleem, A very sensible comment...
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Dec 16, 2018 10:21pm
Increase Further Tax from 3 percent to 10 percent . FBR should focus on those people who are not paying taxes.
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Dec 16, 2018 10:52pm
@Dr. Salaria, Aamir Ahmad, Who is asking you to go to IMF?
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Dec 16, 2018 11:35pm
Do people taxes in the first place? We are in trouble today because of continue borrowing from IMF. Borrowed money is not free. If everyone make their contribution we will make it through.
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Dec 17, 2018 12:26am
The price we shall have to pay of the policies of previous government, the increased debt to gdp ratio mainly to service the increased level of debt.
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Dec 17, 2018 12:46am
Corruption is the cause of all this suffering. Previous governments or current government they are all equally responsible.
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Dec 17, 2018 12:54am
Reduce the underground cash economy by eliminating large currency bills, many businesses operate on cash only and the income is always underreported to the government. They pay very little tax. Using checks, credit or debit cards in their business transactions will make it reportable to the government and FBR can collect taxes from them.
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Dec 17, 2018 01:08am
@Amjad Durrani Engineer USA, I think IMF should force government to tax wealthy zamindars.
How long we will be squeezing industry and public through indirect taxes.
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Dec 17, 2018 05:29am
@Sunnyboy, That is Donald Trump effect.
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Dec 17, 2018 09:33am
IMF only suggest reforms vide taxes, why dont IMF suggest the countries who reduces or block the export quotas of products from Pakistan ?
It will help Pakistan to increase the exports of all sorts, receive proceeds in terms of foreign exchange, will help Pakistan to fight against inflation and devaluation of forex !
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Dec 17, 2018 12:12pm
If this is implemented, there may be even reduction in tax payers numbers
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Dec 18, 2018 12:37am
@Alien1, I think here we are talking about Income taxes, the taxes you referred are probably on his income not on his Assets he own. The taxes on his Assets are property taxes which I do not know what he paid.
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