NO matter how much Pakistan’s finance managers try to downplay the prospect of a ‘mini budget’ to pull off a hefty tax revenue target of almost Rs13tr for the current fiscal, the chatter around the possibility of additional taxation refuses to die down. The reasons are obvious: the FBR is facing a large shortfall of Rs190bn in its collection target for the first four months of FY25, amid declining inflation and falling imports due to slowing economic activities, a narrow tax base and lack of credible measures in the budget to tax the undertaxed and untaxed sectors of the economy, and poor tax enforcement. On top of this, the ongoing, unscheduled visit of an IMF mission to take stock of our fiscal performance under its new $7bn funding programme has given currency to the talk of a mini budget. The FBR chairman’s insistence on a closed-door testimony before a Senate panel, while refusing to confirm or rule out the possibility of more taxes, has given greater credence to the speculation.

This is the situation, despite the repeated claims of some unidentified officials involved in the ongoing discussions with the IMF mission that the government is confident of achieving the tax target and has not requested the lender to scale it down despite the gap in collection, and that the IMF has ‘expressed satisfaction’ over the increase in the country’s abysmally low tax-to-GDP ratio by nearly 1.5 percentage points to 10.3pc. The mini budget may not be imminent as the authorities say. But the FBR’s past and recent performance do not inspire much confidence in the tax collection authority’s ability to come close to the target, let alone meet it in a low-growth, disinflationary environment. The FBR’s ‘optimism’ about pulling off the target rests on punitive action under its ‘transformation plan’ against existing individual and corporate taxpayers suspected of underreporting their tax liabilities. At best, the project will put more pressure on those who are already in this unfair, extortionist tax system — willingly or unwillingly. At worst, the plan is likely to be doomed before it even takes off, because it does not attempt to address the inherent flaws in the tax system. Ruling out a mini budget at this point in time would be premature if not outright folly.

Published in Dawn, November 15th, 2024