- Finance minister says 'we have ensured impact of these taxes will not be passed to downtrodden' in address to wind up Federal Budget 2023-24 debate in National Assembly
The government aims to impose Rs215 billion in additional taxes, said Finance Minister Ishaq Dar on Saturday, as the government eyes to resume the International Monetary Fund (IMF) Programme.
“In the last three days, Pakistan’s economic team has held detailed negotiations with the IMF team to complete the pending review,” Dar said in his address to wind up the Federal Budget 2023-24 debate in the National Assembly.
“As a result of these negotiations, the government is eyeing to impose additional taxes to the tune of Rs215 billion. These amendments will be tabled. However, we have ensured that the impact of these taxes would not be passed to the downtrodden,” he said.
“We have decided to reduce our expenditure by Rs85 billion. However, the reduction will not be from PSDP, salaries of government employees and pensions.”
“I have a belief that if the IMF programme is resumed then it's all good, but if it doesn’t we will still suffice,” he said.
“We will place the agreement with IMF once finalized on the website of the finance ministry,” he added.
Dar noted that for the last few months, the entire nation is asking whether the IMF ninth review will be successfully completed or not.
“I want to assure the house that the government of Pakistan ensured compliance on all points of 'Prior Action' by April 2023. However, due to an external financing gap, our case could not have been presented to the IMF board.
He added that Prime Minister Shehbaz Sharif met Kristalina Georgieva, Managing Director of the IMF, twice on the sidelines of the Summit for a New Global Financial Pact, and it was decided that in order to extend the programme both sides i.e. government and the IMF team should conduct one last try.
Tax target raised
The government has decided to increase the Federal Board of Revenue (FBR) tax revenue target from Rs9.2 trillion to Rs9.415 trillion. The fund allocation for provinces has been increased from Rs5.276 trillion to Rs5.399 trillion.
“Moreover, the total expenditure of the federal government has been raised from Rs14.460 trillion to Rs14.480 trillion. Allocations for pension would increase from Rs761 billion to Rs801 billion,” he said.
The finance minister shared that allocations for subsidies and grants have been budgeted to Rs1.064 trillion and Rs1.405 trillion, respectively.
Dar reiterated that Pakistan will make all external payments on time.
The finance minister said that the Super Tax which was introduced last year, has become more progressive. “For the implementation of the 10% Super Tax, the income slab has been raised from Rs300 million to Rs500 million,” he said.
Super tax will be Rs150-200 million at 1%, Rs200-250 million at 2%, Rs250-300 million at 3%, Rs300-350 million at 4%, Rs350-400 million at 6%, Rs400-500 million at 8% and Rs500 million above at 10%.
The finance minister said that Pakistan needs to urgently increase its tax revenue and thus the Super Tax, which is imposed on high-income groups, will be implemented. “However, we have ended the discrimination and have raised income slabs,” he said.
On the issue of 0.6% tax to be imposed on non-filers for cash withdrawal, Dar said that the move help improve documentation of the economy and will also increase the tax net.
On taxing bonus shares, Dar said that no tax is imposed on dividends earned through bonus shares. “Through this measure, tax is imposed on both cash and tax dividend. Tax on bonus share dividend is recommended at 10%,” he said.
The tax on bonus shares will not be paid by companies but by those who avail dividends.
Section 99D to remain
Dar said many analysts raised concerns about the newly introduced section 99D (Additional tax on certain income, profits and gains) in the Income Tax Ordinance 2001.
Under the new measure, additional tax not exceeding 50% shall be imposed on every person who has any income, profit or gains that have arisen to any person or class of persons due to any economic factor or factors that resulted in unexpected income, profits or gains whether or not disclosed in the financial statements.
“I would like to assure the lower house that the said measure is an enabling provision, and it does not target any specific person or the company. The provision would be imposed on the entire sector and not any individual or company, who have seen windfall gains,”
“Firstly, it (the tax) will be imposed on the corporate sector, secondly, not on an individual and thirdly, it will be imposed on the entire sector,” he said.
“Earlier, the windfall gain tax could have been imposed on the last five year results, however, after meetings with business persons, the government has decided to reduce the time period to three years, and it will be imposed in FY20-21 tax year,” he said.
This law is being enforced in several countries, reiterated Dar.
Dar told the house that liquidity to the tune of Rs3.2 trillion is stuck in different forms of litigations.
“We want to enhance the Alternate Dispute Resolution (ADRC),” he said. A three-member ADRC committee will be formed, Dar said and the judgment of ADRC will be binding on the Federal Board of Revenue (FBR), but not on the taxpayer.
On Benazir Income Support Programme (BISP), the finance minister said that the government has decided to raise budgeted allocations from Rs450 billion to Rs466 billion.
Dar said that petroleum development levy (PDL) of Rs60 per litre will be applicable on petrol and diesel. “However, kerosene and light diesel oil will not be in the slab of Rs60 per litre,” he said.
Dar lauded the role of coalition partners and other stakeholders for their ‘constructive input’ during the budget debate.
“The SBP has withdrawn all import restrictions, which will resolve problems being faced by traders and industries,” said Dar, adding that the government remains committed to increasing the foreign exchange reserves.
The central bank on Friday announced withdrawal of all restrictions on imports to facilitate the industrial sector.
Experts were of the view that the step has been taken to meet the IMF conditions.
“In view of the representations received from various stakeholders, it has been decided to withdraw these instructions with immediate effect,” a circular issued by the SBP said on Friday.
Furthermore, according to SBP, the instructions contained in EPD Circular Letter No. 09 dated May 20, 2022, and EPD Circular Letter No. 11 dated July 05, 2022, shall remain withdrawn.
The SBP in December last year asked banks to prioritize/facilitate imports related to essential items, energy, agriculture inputs, imports by export-oriented industries, and imports on a deferred payment basis.
The resumption of the IMF programme is crucial for the cash-starved economy, which is facing a balance of payment crisis.
The country has barely enough currency reserves to cover one month of imports. It had hoped to have $1.1 billion of the funds released in November but the IMF has insisted on a number of conditions being met before it makes any more disbursements.
Meanwhile, authorities in Islamabad are scrambling to attract funding from its multilateral and bilateral partners.
Authorities ramp up measures
On Thursday, Shehbaz met Kristalina Georgieva, Managing Director of the IMF, on the sidelines of the Summit for a New Global Financial Pact being held in Paris amid the hope that the lender approves the funds allocated under the bailout.
The meeting comes days before the scheduled end of Pakistan’s programme on June 30, with speculation rising on the path forward for the economy without the lender’s aid.