Daily Times

Finance Minister Mohammad Aurangzeb has commenced talks with the International Monetary Fund (IMF), which is pressing Pakistan to boost its revenue collection, according to the reports.

The report suggests that the IMF has put forth two options: introduce a mini-budget to bridge the Rs189 billion revenue gap or devise a plan to curb excessive spending.

Finance Secretary Imdad Ullah Bosal and Federal Bureau of Revenue (FBR) Chairman Rashid Mehmood Langrial held the initial discussions with the visiting IMF team, which is scheduled to remain in Islamabad from November 11 to 15.

It remains uncertain how the IMF will respond, but addressing the Fund’s concerns appears to be a challenging task.

The finance minister informed the IMF that Pakistan’s tax authorities collected Rs11 billion from retailers, wholesalers, and distributors in the first quarter of the current fiscal year.

However, the much-anticipated Tajir Dost Scheme (TDS) fell significantly short of expectations, generating only Rs1.7 million compared to the agreed target of Rs10 billion for the first quarter.

A senior official stated that while the TDS was intended to bring retailers and wholesalers into the tax net, its broader goal was achieved as the FBR successfully collected an additional Rs11 billion through standard taxation practices in the first quarter.

The FBR increased tax rates under sections 236G and 236H of the Income Tax law for transactions with non-filers by nearly tenfold. This prompted many retailers and wholesalers to enter the tax net, contributing an extra Rs11 billion by September 30, 2024.

The number of tax return filers has also risen significantly, accelerating the documentation process of the economy.

Under section 236G, an advance tax is collected on sales to distributors, dealers, and wholesalers by manufacturers or importers at a fixed rate of 2% on the gross sales amount, excluding fertilisers. This tax is credited against the taxable income for the relevant tax year.

Similarly, under section 236H, an advance tax of 2.5% is collected on sales to retailers by manufacturers, distributors, or wholesalers. This tax is also credited against the retailer’s taxable income.

The Power Division briefed the IMF on plans to implement higher fixed rates for on-grid solar energy, which may slow down solar projects. The division is seeking IMF approval for this proposal.

The IMF’s staff mission is in Pakistan to recommend adjustments to prevent deviations from the fiscal and external targets set for the current fiscal year. The Fund opted to visit Islamabad earlier than the scheduled first review under the $7 billion Extended Fund Facility due to fiscal challenges observed in the first four months.

Concerns have emerged that without immediate corrective measures, the fiscal deficit could widen to unsustainable levels by February-March 2025.

According to an official, the IMF may be reluctant to rely on expenditure cuts due to limited room for reduction. Therefore, the preferred solution might be the introduction of a mini-budget to increase the tax-to-GDP ratio to the desired level.