—‘Rapid growth of tax revenues will be ensured through policy measures committed by Pakistani authorities’
ISLAMABAD: The International Monetary Fund (IMF) has projected that the revenues of the Federal Board of Revenue (FBR) would increase to Rs10.5 trillion by the year 2023-24.
In its recently published staff report on Pakistan, the IMF projected that the FBR is likely to collect around Rs5.5 trillion during the current fiscal year, which would increase to Rs7.001 trillion in next year, while in 2021-2022, the revenues would reach to Rs8.3 trillion, and Rs9.48 billion in the subsequent year.
As per the IMF, the overall revenues of the country will most likely surge to Rs7.165 trillion in 2019-20, followed by Rs8.9 trillion in 2020-21, Rs10.6 trillion in 2021-22, Rs12.12 trillion in 2022-23, and Rs13.37 billion in 2023-24.
The report said that the rapid growth of tax revenues in the coming years would be ensured by the policy measures committed by the Pakistani authorities.
“With less than 1.5 million taxpayers filing tax returns and tax compliance generally very low, tax policy and tax administration measures will centre on broadening the tax base while maintaining a low tax rate, aiming to ensure the progress of the taxation system,” it added.
The IMF stated that additional 4-5 percentage points of GDP in additional tax revenues could be achieved by the end of the programme, bringing Pakistan’s tax ratio in line with peer emerging markets.
“In the near term, measures include removing exemptions and preferential treatment to reduce distortions in the tax system and to broaden the tax base. These include the removal of GST exemptions and preferential rates, except for basic food and medicines, a measure that will significantly improve revenues,” the report added.
Greater inter-provincial harmonization and coordination of GST will also simplify filing procedures and increase compliance, the IMF report said.
“Over time, the authorities of Pakistan are committed to taking steps to transform the GST into a broad-based value-added tax (VAT) and making the personal income tax (PIT) fairer and more progressive by raising the upper-end of the PIT structure and consider eliminating PIT tax credits and deductions for the higher income brackets.
“In addition, other tax policy measures include further strengthening taxation on real estate and on agricultural turnover or income by provinces; ensuring equivalent taxation of all sources of income; and eliminating distortionary withholding taxes.”
The report stated that implementation of a full, risk-based audit framework will be facilitated by the recent reversal of legal provisions, limiting the use of tax audits. The framework will be supported by an increase in legal penalties for noncompliance.
“Moreover, licenses for the track-and-trace system for excises on cigarettes will be issued by end-September 2019 (structural benchmark), with a system rollout by end-March 2020.”
The government is also considering options to make Pakistan’s tax administration less fragmented and more business-friendly, including through the creation of a new semi-independent national tax authority to collect the main revenue sources, it added.
The IMF has projected that the pressure of current account deficit will also ease out gradually from its peak $19.9 billion in 2017-18 to as low as $6.95 billion in current fiscal year while $5.49 billion in 2020-21.
“The trade deficit would also decline to $24.9 billion in the current fiscal year, from $29.46 billion in 2018-19. However, it will further go up to $26.8 billion mainly on the back of growing import needs in the coming years.
The exports will surge to $36.7 billion by end of 2023-24 from expected $26.8 billion in 2019-20.”