• Govt aims to increase tax-to-GDP ratio from 10pc to 13pc within three years
• Economic team calls for equitable tax burden, refrains from disclosing names of those exempted, under-taxed
• Aurangzeb says over Rs1.2tr in tax revenue lost through sales tax regime
• Expresses optimism for IMF staff-level agreement by July

ISLAMABAD: Amid aspirations for a staff-level agreement with the Inter­national Monetary Fund (IMF) in July for a fresh bailout, the PML-N-led coalition government’s economic team on Thursday expressed its inability to provide any relief to heavily burdened taxpayers from the salaried classes, or support the health and education sectors because of limited fiscal space, unless all “sacred cows” shoulder their fair share of tax burden.

In the post-budget news conference, Finance Minister Muhammad Aurangzeb and the Federal Board of Revenue (FBR) chairman, despite repeated questions, did not disclose the list of powerful individuals exempted from or under-taxed.

The minister highlighted that more than Rs1.2 trillion worth of tax leakage was taking place through the sales tax regime and the track-and-trace system for tobacco, sugar, cement, fertiliser and other sectors had failed at the outset.

He said the social contract between the taxpayers and the state needed to be corrected in which taxpayers trust the system and get reward and services for the tax they paid, but this was not possible until fiscal space was available and therefore the allocations for social sectors would remain sub-optimal.

He said the abolition of devolved ministers in about two months would create some fiscal space, but the provinces would have to play their role in resource mobilisation.

Discussions with IMF

Asked if drastic budgetary measures were enough to secure an IMF bailout or some other measures could be taken over the next couple of weeks or mini budgets in months to come, Mr Aurangzeb said the two sides had held detailed discussions in a very positive mode and virtual consultations continue.

The minister said all political stakeholders were on board and expressed optimism for a staff-level agreement by July, although he could not provide a definitive commitment.

He assured that an increase of Rs20 per litre in the petroleum levy on oil products proposed in next year’s budget would not be made at once but would be done gradually, keeping in mind the global price situation and that ministries of devolved subjects would be abolished very soon. He also promised “good news soon” about energy tariffs for the industrial sector to reduce their cost of business.

Responding to a volley of questions over a “massive” additional tax burden on the salaried class, the minister said that the emphasis of budget measures was on expanding the tax base through end-to-end digitisation and other reforms to increase the tax-to-GDP ratio to 13pc in three years from 10pc. At present that was simply unsustainable.

Minister of State for Finance Ali Pervez Malik conceded the impact of painful inflation on people, but appealed that the economic realities were equally dire and needed to be addressed.

He said attempts had been made to keep the income tax burden on salaried people as low as possible, but some time would be needed for the reforms to take root and improve the FBR’s enforcement side, which he admitted was weak. “Give us time to enforce and impose direct taxation,” he said.

Unaddressed issues

The finance minister and his team sidestepped questions about their inability to cover income from agriculture. They also could not answer questions about insufficient action for tax recovery following Dubai asset leaks, no effort to control expenditures of the officers of the armed forces, judiciary, prime minister, and president houses, and further burdening the existing taxpayers. The minister also did not respond to a mark of protest from journalists over excessive taxation on salaried people.

Mr Aurangzeb said the retailers should have been brought into the tax net in 2022, but they had been evading registration on one pretext or the other. He reminded that the Tajir Dost scheme was launched in April for voluntary registration, but only 75 of them got themselves registered in about two months, which had now gone beyond 31,000 after the FBR’s enforcement teams had been mobilised. The retailers would be in the tax net through digitisation, and their taxation measures would take effect at the start of July.

POS funds, digitisation

While the FBR chairman did not disclose the utilisation of funds collected from consumers through point-of-sale (POS) fee and intended for prizes to taxpayers, the minister said the scheme would be relaunched soon to promote digitisation and reduce the currency in circulation that exceeded Rs9 trillion at present and one of the main reasons for inflation.

The FBR chief said about Rs1bn of POS funds were available in accounts while other officials disclosed that much higher amounts were being utilised by Inland Revenue Service (IRS) officials for their own “welfare” in violation of financial rules and prize draws were suspended just a few months after its launch.

The finance minister said IT freelancers and small and medium enterprises (SMEs) would be facilitated through various schemes for which funds had been allocated in the budget.

He said sufficient reforms and taxation measures had been introduced in the budget to tap real estate sector’s revenue potential where more than Rs9tr worth of non-productive assets had been parked.

He reiterated his earlier stance about the need for the government to get out of the wheat procurement. Responding to a question about the revival of parliamentarians’ schemes through a Rs75bn allocation in the budget, Mr Aurangzeb said these schemes were in different implementation phases and could have led to sunken costs without desired outcomes.

Published in Dawn, June 14th, 2024