Government considers new Tax measures due to FBR revenue shortfall

The incumbent government has no option but to consider implementing additional revenue measures, such as mini-budgets or expenditure cuts, after the Federal Bureau of Revenue (FBR) failed to achieve its tax targets, The News reported on Sunday.

Although not confirmed, the International Monet Fund (IMF) may send its mission to Islamabad in the coming weeks, with Pakistani authorities stating that the lender’s team will visit the country next month (December 2024). However, insiders insist that the IMF team might prefer to arrive sooner.

The government has drafted an ordinance that it is likely to present before the federal cabinet soon, with expectations that it may be promulgated within the current month.

FBR officials claim that the proposed ordinance could implement stringent enforcement measures, such as freezing bank accounts and banning the purchase of plots and vehicles, among other actions.

“The FBR may propose raising withholding tax rates on all imports, hike withholding tax rates on sale and purchase of properties and some other hikes in tax rates,” top official sources confirmed the publication a day earlier.

Economic managers still have the option to further squeeze the development budget through the Public Sector Development Programme (PSDP).

In the first quarter (July-September), utilization reached only Rs22 billion, despite a revised allocation of Rs1,100 billion for the entire financial year 2024-25.

The FBR experienced a revenue shortfall of Rs189 billion during the first four months (July-October) of the current fiscal year, and concerns are rising that the tax machinery will continue to face a shortfall in the first six months (July-December) of the current fiscal year.

The FBR’s revenue forecast indicates a potential shortfall of Rs321 billion in the first six months, prompting the need to consider a mini-budget to align the fiscal framework with the IMF agreement.

The government retains the discretion to satisfy the IMF by reducing expenditures, but the Ministry of Finance is likely to oppose any such proposal.

In a recent meeting led by the Minister of State for Finance and the Secret of Finance, the finance ministry officials expressed their dissatisfaction with the revenue forecast, which predicts a tax shortfall of Rs321 billion in the first half of the current fiscal year. If the tax shortfall increases, the Ministry of Finance will have to cut its excessive expenditures.

“The Pakistani team will be walking on a very tight rope because if the revenue measures in the shape of hiking tax rates get a nod, it might further shrink the economy,” said an official arguing that the demand in the economy had already suppressed and tax rates hikes would further suffocate the economic activities.

When the television channel aired the stories, the FBR spokesman issued an official statement on Saturday, stating that some news channels had broadcast a baseless and false claim that the IMF had rejected the FBR’s request to revise its targets.

“It is outright denied that any such meeting had taken place with the IMF on this subject. Nor this subject has ever been on the agenda of any of the meetings, virtual or otherwise, with the IMF.”

“Therefore, the FBR not only rejects the news but also advises the national media to refrain from such fake stories, which might affect the national interests adversely,” he said.