ISLAMABAD: The International Monetary Fund (IMF) has urged the Pakistani authorities to take agreed contingency revenue measures in case a shortfall in tax collection of the Federal Board of Revenue (FBR) continues in May 2024.

The IMF in its latest report titled, “Second and final review under the Stand-By Arrangement (SBA)”, stated that the annual FBR revenue target (Rs9.415 trillion) remains unchanged but there are risks of shortfalls in April and May 2024 due to holidays that will see port closures and weigh on revenue collection.

Agreed contingency measures will be adopted should collections fall short. Additional efforts are also needed to meet the SBA’s revenue administration goals, it added.

IMF asks FBR to review tax incentive regimes

The IMF has projected Rs11.113 trillion as the revenue collection target of the FBR for 2024-25.

The eight contingency revenue measures agreed during the “First Review under the SBA” having an annual revenue impact of Rs216 billion are:

(i) Raise the sales tax rate for textiles and leathers tier-1 from its reduced rate of 15 per cent to the standard rate of 18 percent, expected collection of Rs1 billion per month.

(ii) Implement a FED of Rs5 per kilogram on sugar, expected collection of Rs8 billion per month.

(iii) Increase advance income tax on import of machinery by 1 percentage point, expected collection of Rs2 billion per month.

(iv) Increase advance income tax on import of raw materials by industrial undertakings by 0.5 percentage points, expected collection of Rs2 billion per month.

(v) Increase advance income tax on import of raw materials by commercial importers by 1 percentage point, expected collection of Rs1 billion per month.

(vi) Increase withholding tax on supplies by 1 percentage, expected collection of Rs1 billion per month.

(vii) Increase withholding tax on services by 1 percentage point, expected collection of Rs1.5 billion per month.

(viii) Increase withholding tax on contracts by 1 percentage point, expected collection of Rs1.5 billion per month.

The IMF’s latestreport stated that efforts to collect additional revenue from retailers have been delayed, and challenges continue in the tobacco sector where, despite the mandatory implementation of track-and-trace systems, smuggling and clandestine production continue despite efforts to curtail informal production and imports.

The FBR is expanding its track-and-trace system to additional commodities such as sugar, fertiliser, and cement to tighten control over informal markets in these sectors. The FBR has, however, successfully registered 1.1 million new filers, from which 170,999 new returns have been obtained through enforcement measures, with the remainder coming voluntarily, it added.

The IMF has also urged the government that renewed efforts are needed to expedite the execution of the implementation of tax policy reforms in the FBR.

It stated that the implementation of some reforms started by the caretaker government have been delayed, and renewed efforts are needed to expedite their execution.

The plans to transform the FBR into a semi-autonomous Revenue Authority have been delayed so that an international consulting firm can be engaged for final reforms. Despite these setbacks, there has been progress in other areas, such as the passage of the documentation law mandating data sharing with the FBR and collaboration with NADRA to ensure secure data transmission.

Copyright Business Recorder, 2024