The International Monetary Fund (IMF) is considering reducing Pakistan’s tax collection target to below Rs12.5 trillion due to a slowdown in economic activity and a revenue shortfall in the first eight months of the fiscal year, The Express Tribune reported.
While the FBR had originally aimed for over Rs12.9 trillion revenue collection, any downward revision will depend on the Finance Ministry’s ability to cut expenditures and ensure the Rs1.2 trillion primary budget surplus mandated under the IMF program.
During Wednesday discussions on budget performance, revenue collection, and external financing, the IMF and Pakistani authorities explored reducing the FBR target to between Rs12.3 trillion and Rs12.5 trillion. The FBR suggested a Rs579 billion cut, but the IMF is inclined towards a Rs435 billion reduction.
The lender has made it clear that reducing tax targets without expenditure cuts could undermine fiscal targets. With limited room for savings, the Finance Ministry is considering further reductions in the Public Sector Development Programme (PSDP). Originally set at Rs1.4 trillion, the PSDP budget was already cut to Rs1.1 trillion, and further reductions are likely.
However, tax officials remain optimistic about meeting revenue collection targets for March despite the eight months shortfall, but anticipate potential gaps in April and May, which they expect to offset in June.
The FBR has also proposed lowering tax rates for tobacco, beverages, and construction sectors to boost sales, estimating an additional Rs90 billion in revenue. Another Rs300 billion is expected from court case recoveries.
Pakistan had previously imposed Rs1.3 trillion in additional taxes to meet its fiscal target, disproportionately impacting the salaried class. Despite these measures, revenue collections fell short by Rs606 billion during July-February. Officials attribute Rs450 billion of this gap to lower-than-expected economic growth, with no further slippage anticipated until June.
To offset the shortfall, the government is looking at recovering Rs130 billion through advance income tax under Section 147 of the Income Tax Ordinance. The FBR has already collected Rs929 billion in advance tax during the first seven months, reflecting a 27% year-on-year increase.
Additionally, Rs90 billion has been secured through enforcement measures, primarily from windfall taxes on banks and an increase in the base tax rate to 44%.
Finance Minister Muhammad Aurangzeb has assured that the government will explore all possible avenues before considering additional taxation measures.
Meanwhile, the Power Division assured the IMF that circular debt for the current fiscal year will remain below the agreed limit of Rs2.429 trillion. The lender has also sought projections for circular debt in 2025-26, reflecting its focus on energy sector reforms.
The Pakistan Bureau of Statistics (PBS) briefed the IMF on social and economic surveys, highlighting the need for updated data on poverty, unemployment, and agriculture.
The Household Integrated Economic Survey (HIES) 2024-25 is currently underway, providing insights into literacy rates, out-of-school children, health indicators, and household income and consumption patterns. The Labour Force Survey 2024-25 is also in progress, but the government has decided to publish only an annual report instead of quarterly updates.
With IMF talks scheduled to continue until March 14, the final decision on tax targets, budget adjustments, and expenditure cuts will be key to securing the next $1.1 billion loan tranche under the $7 billion Extended Fund Facility (EFF).
