Pakistan’s tax authorities have presented a strong case to the visiting IMF Mission, arguing that the recent increase in tax rates across various sectors has led to a reduction in overall revenue collection. In a bid to address the shortfall, discussions have included the possibility of further raising the Petroleum Levy (PL) from Rs60 to Rs80 per liter. This move would aim to curb fuel consumption, which is putting a strain on the country’s foreign exchange reserves due to the need for importing fuel.
Currently, Pakistan has raised Rs261 billion in revenue from the Petroleum Levy during the first quarter of the fiscal year, which is well below the IMF’s target of Rs1,066 billion for the entire year. This revenue shortfall is part of a broader fiscal challenge, with the Federal Board of Revenue (FBR) projecting a total revenue shortfall of over Rs600 billion by the end of the fiscal year.
The IMF Mission, led by Nathan Porter, is focused on addressing the external financing gap faced by Pakistan. In addition to discussions on the PL increase, the IMF is also expected to review the performance of Pakistan’s provinces in terms of meeting their revenue targets. The IMF will convene a meeting with all four provincial governments later this week to discuss the Fiscal Pact and review progress.
The Ministry of Finance has emphasized that the FBR is working to increase tax compliance, citing the success of the Tajir Dost Scheme, which brought 0.4 million retailers, wholesalers, and distributors into the tax net, contributing Rs11 billion in additional taxes. However, the FBR has also pointed out several issues, including faulty revenue projections, such as the imposition of Federal Excise Duty (FED) on acetate tow for the tobacco industry, which has not yielded the expected revenue.
The FBR’s chairman, Rashid Mehmood Langrial, argued that reducing tax rates and broadening the tax base could lead to increased collection. For instance, easing tax burdens on property transactions and the tobacco industry could encourage more activity and thus higher revenues.
A key area of contention during the discussions has been the performance of the provinces, particularly Punjab, which has not met its revenue targets as agreed under the IMF’s conditions. The IMF will likely address this issue in upcoming meetings with provincial officials.
The IMF mission is expected to offer its prescriptions for addressing the fiscal shortfall and exploring potential reforms to ensure more effective tax collection and revenue generation in the coming months.
