With yet another mini budget expected next month amid steeply falling short of revenue collection target - and before the country successfully negotiates an assistance package with the IMF - increase in taxes is imminent to create the much-needed fiscal space. Around Rs100-150 billion worth of new and revised taxes and duties are on the cards where the government might be seen to go against its earlier stances.
For one, petroleum products might be the first target. There are two options: First is to increase the petroleum levy, which isn’t what the government planned initially. Recall that the PTI government reduced the petroleum levy to its previous target in the first mini-budget it announced in September 2018. The second option (not mutually exclusive) is to increase the GST on petroleum products, which the government had earlier slashed. Furthermore, the FBR has reportedly urged the government to apply a fixed sales tax on POL products and not on price to prevent revenue collection from falling with falling oil prices.
Moving on, while the government might have looked one hundred percent (or at least 80-90 percent) in consonance with the demands of the big corporates at the latest Pakistan Economic Forum (PEF), another adjustment on the cards is the freezing of corporate tax rate at current level of 29-30 percent. Bringing the corporate tax rate to 25 percent has been a recommendation among many others by the PBC. Corporate tax rate in Pakistan, which has been one of the highest in the world, has been brought down gradually in recent years; and through the Finance Act, 2018, corporate tax rate has been set to be reduced to up to 25 percent by the 2023.
The proposed revival of taxes on prepaid telecom cards that the Supreme Court had suspended earlier this year is also another easy avenue that the government might explore to amp-up revenue collection in the remaining fiscal year. The government may justify the move under the premise of collecting money for the dam fund.
Also on the plate is a possible increase in GST on export-oriented industries - like textile, sports, surgical and leather - that are being charged lower than normal tax rate. And while the government is all set to impose the ‘sin’ tax, sugar beverages, and tobacco might see additional FED. Moreover, the federal excise duty on 1800cc cars and above, which was increased to 20 percent from 10 percent in the last amendments to the Budget FY19, might see another hike too.
There is little doubt that the government needs to increase its revenue collection significantly. However, instead of getting high incremental revenues from the direct taxes in direct mode, it seems it will follow its predecessor and resort more on indirect taxation. Such are the practical exigencies. It would be no less than a surprise if the government in this ‘extraordinary event of presenting a third money bill’ in a given fiscal year will rely more on revenues to be generated by the broadening of direct tax base. Will the third time be a charm? Not necessarily so, considering that FBR is still be reformed and that the increase in filers that Finance Minister boasts about have added precious little in terms of incremental revenues.
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