ISLAMABAD: The Federal Board of Revenue (FBR) has estimated a shortfall of Rs175 billion in the current fiscal year (2023-24), as the superior courts have suspended the implementation of new measures announced by the government to tax the rich.

“We have informed Prime Minister Shehbaz Sharif about the amount stuck due to decisions by superior courts,” a tax official told Dawn on Thursday.

The courts stayed the collection of super tax and windfall income tax.

According to the official, since 90 per cent of cases pending in courts pertain to large taxpayers, including banks and multinational corporations, tax will be collected easily from them during the last 10 days of this month. Assistance has been sought from the Attorney General for Pakistan in the matter, he added.

Govt plans to raise tax rates and withdraw exemptions

In the last budget, the government imposed new tax measures on wealthy taxpayers totalling more than Rs400bn.

“We have requested the prime minister to resolve these cases before June 20,” the official said, adding that otherwise the revenue collection target of Rs9.42 trillion for the current fiscal year would be missed by a large margin.

The Supreme Court directed wealthier taxpayers to deposit 50pc of the super tax in February this year. As a result, the shortfall is now expected to be under Rs200bn, according to the tax official.

In 11MFY24, the FBR collected Rs8.122tr against a target of Rs8.162tr target. The FBR will need to raise Rs1.253tr this month to meet the FY24 budgetary target of Rs9.415tr.

The June target was projected at Rs1.178tr, but it now adds up to Rs75bn due to the backlog from previous months.

The Finance Division, FBR, and the IMF have differing revenue collection targets for 2024-25. All three have different projections based on their calculation, the official said.

According to the official, there is a disagreement regarding taxation measures for the coming budget. The impact in money terms of these differences ranges from Rs500bn to Rs1.8tr.

In an effort to generate more revenue, the government plans to increase the current tax rates and eliminate sales tax exemptions, a politically sensitive matter.

According to FBR estimates, autonomous revenue collection (based on GDP growth and inflation) will be around Rs11.50tr in FY25. In addition, the federal government will review the revenue measures in consultation with the IMF for the next fiscal year.

During the recent IMF technical meetings, the FBR revenue target was projected to be between Rs12.4tr and Rs12.6tr, based on expenditure projections. However, the finance division’s initial estimate for FY25 is Rs13 trillion.

Contrary to these two projections, FBR has projected that revenue collection will be Rs12tr for 2024-25. However, the final revenue collection target will be determined by the finance division, the official said.

According to the official, the actual tax target would be set when the government releases numbers for inflation and GDP growth. The government will need to boost imports in the next fiscal year as well.

The IMF has asked the government to match the salary slab to the incomes of pensioners. However, no final decision has been taken so far.

The Fund has asked FBR to collect taxes from traders and wholesalers, who are currently not contributing to tax collection. The IMF focus is on sales and income taxes, particularly withholding taxes. Currently, the sales tax exemption exceeds Rs1.2tr.

The government will face a difficult decision to revoke exemptions for food, international agreements, and pharmaceutical products. A few items, such as insecticides and solar panels, may be subject to sales tax.

At the same time, the government is expected to raise existing withholding tax rates and introduce new ones, such as reviving the tax on cash withdrawals from banks.

Furthermore, the finance ministry is considering imposing a tax on the import of exempted raw materials while increasing tax rates on the existing ones.

Published in Dawn, June 7th, 2024