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Mini-budget unlikely as IMF satisfied with tax steps
• Hike in petroleum levy, imposition of GST on petroleum products not expected anytime soon
• Govt sees economic activity picking up next month due to stable rupee, lower policy rate
• Senate body points to issues in Islamic banking, fraudulent POS receipts, fake ATM notes
• 10pc levy on transport with Iran has left over 600 trucks stalled
ISLAMABAD: The International Monetary Fund (IMF) is reported to have expressed satisfaction over the increase in the tax-to-GDP ratio by nearly 1.5 percentage points, relieving the authorities from any push for additional tax measures through a mini-budget.
According to sources closely involved in ongoing discussions with the visiting IMF mission, the Federal Board of Revenue’s (FBR) revenue collection target for the current fiscal year will remain unchanged at Rs12.97 trillion. Authorities have ruled out the need for additional taxes or a mini-budget, citing the IMF’s positive response.
Officials said that economic activity is expected to pick up by December in view of a stable exchange rate and a reduction in the State Bank’s policy rate, likely offsetting a tax shortfall of around Rs190 billion recorded in the first four months (July to October) of the fiscal year.
There would neither be any increase in the petroleum levy nor would general sales tax (GST) be imposed on petroleum products, the sources said after a meeting of the Senate Standing Committee on Finance and Revenue presided over by PPP Senator Salim Mandviwalla.
They said the tax-to-GDP ratio had increased from 8.8pc to 10.3pc and the IMF was satisfied with this 1.5 percentage point improvement.
The sources reiterated the commitment given to the IMF that tax collection on agriculture income would start from the next fiscal year. They said that tax reforms were progressing and the draft Tax Laws Amendment Ordinance 2024 had been presented to the prime minister for approval. The ordinance contains a new family income tax return system and abolishes the concepts of non-filers and late filers.
The sources, however, hinted at tinkering with the Tajir Dost Scheme to effectively bring in traders into the tax net and said these were being discussed with the IMF mission during the ongoing meetings.
The IMF has been told that the FBR collected Rs12bn from retailers during the first quarter of 2024-25, although only 500,000 potential retailers were the target out of three million small shopkeepers.
‘Slow progress on Islamic banking’
Earlier, the Senate panel decided to call scholars of the Council of Islamic Ideology to have input on the working of Islamic banking operations in Pakistan, for which a special session would be arranged.
The central bank’s deputy governor told the panel that Riba was the main difference between conventional banking and Islamic banking.
Senator Farooq H. Naek pointed out that full implementation of Islamic banking was committed for 2027, but progress had been very slow. The SBP’s deputy governor emphasised the need for continued deliberation on Islamic banking and assured the committee that several banks were actively working towards compliance.
FBR Chairman Rashid Mehmood Langrial told the panel that FBR’s enforcement would be improved in the coming months after approval of a transformation plan, including enhancing the board’s operational expertise, organisational capacities and anti-smuggling measures.
Key discussions during the meeting included the contentious 10pc levy on transport and businesses between Pakistan and Iran, raised by Senator Manzoor Ahmad Kakar in a Senate session. The committee resolved to report to the house that the issue may be referred to the Standing Committee on Communications, noting that the levy, imposed with the federal government’s approval, did not pertain to the Federal Board of Revenue.
While FBR officials emphasised that this specific tax was not their responsibility, Senator Kakar raised concerns that Pakistani trucks were being unfairly taxed, with over 600 trucks currently parked due to the levy. The committee agreed to forward the matter to the Communications Committee for further deliberation.
The committee also discussed concerns raised by Senator Mohsin Aziz regarding the fee collected by FBR for point of sale (POS) services and its utilisation. The FBR chairman confirmed the introduction of a policy to penalise businesses that are issuing fake POS receipts, imposing fines of Rs500,000 and shutting down shops involved in such practices.
Senator Aziz highlighted weaknesses in enforcement, with some fake receipts circulating in the market, including a bill in Islamabad marked “tentative”. The FBR chairman acknowledged the issue and assured that enforcement measures would be strengthened soon.
A key briefing by the SBP highlighted the performance of banking branches in smaller provinces, revealing that as of June 30, 2024, there were 3,334 banking branches operating in Balochistan, Khyber Pakhtunkhwa, Azad Jammu and Kashmir and Gilgit-Baltistan, accounting for 20pc of the total nationwide branches. Additionally, 199 branches of microfinance banks were serving these regions, representing 13pc of the country’s total microfinance network.
Another pressing issue discussed was the problem of counterfeit currency dispensed from ATMs. Senator Kakar cited a case where a young man received fake Rs5,000 notes from an ATM. The CEO of a commercial bank assured the committee that security measures were being enhanced to address this issue.
Published in Dawn, November 14th, 2024
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