• Unable to defend exemptions, Aurangzeb offers sympathy to salaried class as their tax burden rises
• Says FBR has potential to achieve 40pc revenue growth in FY25
• New budget comes into effect from today after presidential assent

ISLAMABAD: Unable to defend tax exemptions in the new budget for government and armed forces employees and pensioners, as well as real estate sales, Finance Minister Muhammad Aurangzeb said on Sunday that he had only extended the existing tax exemptions and hoped to secure a “good staff-level agreement” from the IMF within this month, based on ongoing progress on “prior actions and structural benchmarks”.

Meanwhile, the new budget will come into effect from today (Monday) after President Asif Ali Zardari approved the Finance Bill 2024 on Sunday.

Speaking at a news conference, Mr Aurangzeb conceded that the tax burden on the salaried class had gone up in the final budget and could “only empathise and sympathise” with those facing additional difficulties and stress.

“We have given only extension in the existing law, (and there is) no new tax exemption,” he said in response to a question about the tax-free treatment of real estate sales for civil and military officials, which contrasts with the 15 per cent and 45 per cent tax rates for filers and non-filers, respectively, among ordinary citizens.

The minister also admitted that not only journalists at home but IMF officials were also sceptical over tax authorities’ ability to increase revenue through enforcement measures because “we have not been able to do it before” and hence the government actions would have to speak louder than words.

Mr Aurangzeb highlighted that the tax burden had again fallen on individuals and salaried persons, who were already contributing significantly, instead of providing relief, for which over Rs3.8 trillion tax exemptions under the prevailing presumptive regime would have to be abolished. He also mentioned that new sectors, such as retail and real estate, have been brought into the tax net.

At the same time, he confirmed about the Rs100 billion revenue shortfall against the Rs9.415tr target for the outgoing fiscal year. He described this shortfall, which came despite about Rs250bn mid-year mini-budget, as “hardly anything” and said that with 30pc revenue growth, the Federal Board of Revenue has proved that it can achieve a 40pc increase in the fiscal year 2024-25.

Mr Aurangzeb said the revenue target of Rs12.97tr finalised in consultation with the IMF staff mission had remained unchanged while the tax measures saw changes between June 12 and 30 and positive progress was being made with the Fund through ongoing virtual discussions. He said a follow-up mission of the IMF may visit Islamabad in the coming days if so required.

He said prior actions and structural benchmarks are moving in the right direction and “we hope to reach a good agreement” by the middle or end of the current month with the IMF for over three-year Extended Fund Facility worth $6bn to $8bn.

“We have reached an agreement on the tenor, and discussions still continue over the volume” of the IMF package that would range between $6-8bn,” he said, adding that the IMF programme “is on track”.

The IMF programme was an “assurance” for macroeconomic stability going forward that was more important at this stage than economic growth that also led to foreign exchange crisis in a matter of couple of months as evident from policies introduced three to four years ago, Mr Aurangzeb said, apparently referring to Shaukat Tarin-led expansionary policies.

“Our challenge is how to make this macroeconomic stability permanent” because if it shatters, the rest will be difficult to handle given the import-led nature of Pakistan’s economy, he said.

Besides, the investments from Saudi Arabia and the UAE and under CPEC’s second phase were also linked to the IMF programme while other international financial institutions like the World Bank had only recently approved about $1.4bn support. In addition, Pakistan has to return to the international capital markets, including the Chinese bond market, in the fiscal year 2024-25.

He reiterated that the basic principle of economic policy — increasing the tax-to-GDP ratio to 13pc in three years and taking sustainable structural reforms in power and petroleum sectors and other state-owned enterprises — would be crucial.

He added that ending about Rs1tr annual losses in SOEs could help deliver a lot of other things.

In this regard, the tax-to-GDP ratio has to be increased to 10.5pc in fiscal 2025. This would be done by stopping leakages and theft and improving compliance through measures introduced in the budget like end-to-end digitisation and the simplification of processes.

The finance minister said that the backlog on account of the repatriation of profits and dividends abroad had been cleared because the country could not attract fresh foreign direct investment without addressing the requirements of the existing investors.

Likewise, all tax refunds have been cleared for the current year, while long overdue refunds under the drawback of local taxes and the levy scheme will also be cleared soon through an allocation in the budget.

On the expenditure side, Mr Aurangzeb said the government curtailed the Public Sector Development Programme by about Rs250bn, which should now come from the private sector in the form of a public-private partnership. He said the ministries of devolved subjects would be axed while protecting the rights of their employees.

He said the Centre was in talks with provinces to manage both revenues and expenditures under the new national fiscal pact. For this, the provinces would be incentivised to focus on additional recoveries from their taxes and share sovereign expenditures by finding projects themselves.

Responding to a question on tax on retailers, the minister said it was still a work in progress and a comprehensive scheme would be announced in consultation with the traders to avoid any confrontation that hampered the process in the past.

The minister said the challenge was to introduction a tax measure that should have been done in 2022 while proceeds could go up with digitalisation.

President approves budget

Meanwhile, President Asif Ali Zardari on Sunday accorded his approval to Finance Bill 2024 on the advice of the prime minister under Article 75 of the Constitution.

“The Finance Bill will be effective from July 1,” President Secretariat said in a press release on Sunday.

The National Assembly passed the Finance Bill 2024 on June 28 with certain amendments, adopting the financial proposals for the new fiscal year.

Published in Dawn, July 1st, 2024