Reduction in tax collection target by Rs350 billion to be sought from IMF

Moreover, non-tax revenue also includes in the list of topics in the discussion.

ISLAMABAD (Dunya News) – Following the new round of talks with the International Monetary Fund (IMF) for the release of third tranche of about $450 million under the $6 billion Extended Fund Facility (EFF), Pakistan may consider bringing a mini budget to overcome the shortfall in tax collection by slapping more taxes or cut down expenditures in order to keep the budget deficit within envisaged limits if non-tax revenue collection is not increased, sources familiar with the matter told the media on Tuesday.

Importantly, the staff mission of the IMF, in its discussion with Federal Board of Revenue (FBR), will be informed that the tax collection target of Rs5.238 trillion could not be achieved, and the total collection could not cross Rs4.8 trillion.

The primary focus of the technical discussion will be towards seeking a further downward reduction in revenue collection target for the current fiscal year in view of a massive Rs350 billion shortfall in the first seven months ending Jan 31, 2020.

FBR’s member of Inland Revenue Policy Dr Hamid Ateeq Sarwar will brief the IMF delegation along with other members of the policy wing, and subsequently revenue collection targets and corresponding achievements for the last quarter (October to December) in the current fiscal year FY20 will be reviewed.

Recommendations including getting imported products comparatively cheaper and increasing custom duty on imported items to cover revenue shortfall in tax collection will be analysed.

Moreover, non-tax revenue also includes in the list of topics in the discussion. The FBR’s request for reduction in revenue target by Rs350 billion will be discussed.

On January 28, the State Bank announced to keep its monetary policy with unchanged interest rate of 13.25 per cent.

Speaking about inflation and its impact on the interest rate, Governor Reza Baqir pointed out that the bank had decided to keep the rate unchanged at 13.25pc since inflation was expected to remain 11-12pc during the current fiscal year (FY20).

He expressed the confidence that the inflation target of 5-7pc would be achieved in the medium term – over the next six to eight months.

Besides, the global moneylender will consider performance of various ministries and government departments, and in particular, energy and tax reforms under the current regime.

Adviser to Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh talked to media and confirmed that talks with the IMF have commenced for third installment of loan.

“Several measures, including import of wheat, have been taken by the government to control inflation. Pakistani currency has strengthened against U.S. dollar. Foreign investors are now interested to do business in Pakistan.

“Funding for Ehsaas Programme will be doubled with support from the IMF. Government has approved package of Rs7 billion for utility stores and is giving subsidy to about 72 percent electricity consumers.

“Provincial governments should take steps to control inflation and take action against profiteers. Hike in vegetable prices is seasonal and rates will reduce soon.

“Pakistan’s economy is improving. The IMF, which is granting us six billion dollars, will be briefed on economic performance from July to December.”

In late December, Islamabad received second tranche of $454 million from the IMF, and the global moneylender at that time declared that Pakistan’s reform programme was "on track and has started to bear fruit".

Following the release of the second tranche, the total amount of money so far granted by the IMF under the current programme rose to $1,440m.

The Fund, after completing its first review of Pakistan under the EFF, noted that "decisive" implementation of government policies had helped preserve economic stability in the country.

In a press release, the IMF had noted that the "transition to a market-determined exchange rate has been orderly [and] inflation has started to stabilise, mitigating the impact on the most vulnerable groups of the population."

The IMF had further observed that the "authorities remain committed to expanding the social safety nets, reducing poverty, and narrowing the gender gap."

At the same time, however, the Fund had warned that "risks remain elevated". The press release had quoted IMF’s First Deputy Managing Director and Acting Chair David Lipton as saying: "Strong ownership and steadfast reform implementation are critical to entrench macroeconomic stability and support robust and balanced growth."

"The authorities are committed to sustaining the progress on fiscal adjustment to place debt on a downward path," Lipton had said, adding that: "The planned reforms include strengthening tax revenue mobilisation, including the elimination of tax exemptions and loopholes, and prudent expenditure policies. Preparations for a comprehensive tax policy reform should start early to ensure timely implementation."

"The flexible, market-determined exchange rate remains essential to cushion the economy against external shocks and rebuild reserve buffers," he had suggested.

Lipton had also pointed out that "faster progress [was] needed to improve the AML/CFT framework supported by technical assistance from the IMF and other capacity development providers" in order for Pakistan to be removed from FATF’s grey list.

Under the terms agreed, the government is required to apprise the parliament about its income, expenditure and savings by February 28.

The government is also required to introduce the state bank’s sovereignty bill in the parliament by March 31. The bill will restrict printing of new currency notes for covering the fiscal deficit.

The government will implement the two major provisions of the Financial Action Task Force (FATF) under which banks will strictly monitor the transactions of their customers, and the bank secrecy rules will not be applicable on the implementing agencies.

The IMF package, which was approved in July last year, is an effort to revive Pakistan’s ailing economy through periodic release of funds over a 39-month period, conditional on the government meeting the Fund’s policy guidelines.

Pakistan was placed on FATF’s grey list in 2018. In October, 2019, the FATF retained Pakistan on its grey list and gave the country four-months to take stronger measures to combat terror financing and money laundering.