Pakistan will increase taxes in its last effort to obtain an IMF loan.
Ishaq Dar, the finance minister, stated on Saturday that the government intends to impose an additional tax burden of Rs215 billion as it prepares to restart the IMF Programme.
In his speech to close the National Assembly’s debate on the Federal Budget for 2023–24, Dar stated that Pakistan’s economic team had engaged in extensive discussions with the IMF team over the previous three days to conclude the outstanding review.
The administration is considering raising taxes by Rs215 billion as a result of these negotiations. These changes will be submitted. But we have made sure that those who are already struggling won’t be affected by these levies, he continued.
We have made the decision to cut our spending by Rs. 85 billion. However, the PSDP, government employee pay, or pensions will not be affected by the reduction.
I believe that if the IMF programme is restarted, everything will be OK, but if not, we will still get by, he remarked.
Once it has been finalized, we will post the agreement with the IMF to the finance ministry’s website.
Dar said that for the past three months, everyone in the country has been wondering whether or not the IMF’s ninth review will be successful.
I want to reassure the house that the Pakistani government made sure that all “Prior Action” items were complied with before April 2023. However, we were unable to make our case to the IMF board due to a funding shortage from outside sources.
On the fringes of the Summit for a New Global Financial Pact, he said, Prime Minister Shehbaz Sharif had two meetings with Kristalina Georgieva, Managing Director of the IMF, and it was resolved that both the government and the IMF staff should make one final effort to extend the program.
Increased tax threshold
The Federal Board of Income’s (FBR) target for tax income will now be increased from Rs9.2 trillion to Rs9.415 trillion by the government. Provinces now receive a fund allocation of Rs5.399 trillion instead of Rs5.276 trillion.
Additionally, the federal government’s overall spending increased from Rs14.460 trillion to Rs14.480 trillion. According to him, pension allocations would rise from Rs761 billion to Rs801 billion.
According to the finance minister, budget allocations for grants and subsidies are Rs1.064 trillion and Rs1.405 trillion, respectively.
Dar reaffirmed Pakistan’s commitment to the timely payment of all external obligations.
The Super Tax, which was implemented last year, has gotten more progressive, according to the finance minister. The income slab has been increased from Rs300 million to Rs500 million, he said, in preparation for the 10% Super Tax.
Super tax rates will range from Rs150 to Rs200 at 1%, Rs200 to Rs250 at 2%, Rs250 to Rs300 at 3%, Rs300 to 350 at 4%, Rs350 to 400 at 6%, Rs400 to Rs500 at 8%, and Rs500 and above at 10%.
The Super Tax, which is levied on high-income groups, would be put into effect, according to the finance minister, who stated that Pakistan urgently needs to enhance its tax collection. He added that we have lifted the income slabs and eradicated discrimination.
Regarding the 0.6% tax that will be levied on people who don’t file for cash withdrawals, Dar noted that doing so will help the economy’s paperwork and expand the tax base.
Regarding the taxation of bonus shares, Dar stated that dividends received from bonus shares are not taxed. Using this technique, tax is imposed on both cash and tax dividend. Tax on dividends on bonus shares should be 10%, he advised.
Companies will not be responsible for paying the tax on bonus shares; rather, dividend recipients will.
Section 99D will continue
The recently added provision 99D (Additional tax on certain income, profits, and gains) of the Income Tax Ordinance 2001 has drawn criticism from numerous analysts, according to Dar.
Everyone who has income, profits, or develops that have accrued to them as a result of any economic factor or factors that led to unexpected income, profits, or gains—whether or not they were disclosed in the financial statements—shall be subject to an additional tax of up to 50% under the new measure.
I want to reassure the lower house that the aforementioned proposal is an enabling provision and does not single out any particular person or business. The restriction would apply to the entire industry, not just any person or business that has experienced windfall profits.
He stated that the tax would be levied on the business sector first, individuals would not be subject to it, and then, the entire sector will be subject to it.
Previously, the windfall gain tax might have been applied to the previous five years’ results; however, the government has chosen to shorten the time frame to three years, and it will be applied in the FY20-21 tax year as a result of conversations with businesspeople, he added.
Dar underlined that other nations are applying this law.
Dar informed the assembly that 3.2 trillion rupees worth of liquidity is entangled in various legal disputes.
He stated that we seek to improve alternative dispute resolution (ADRC). Dar announced the formation of a three-person ADRC committee. The Federal Board of Revenue (FBR) will be bound by the ADRC’s decision, but not the taxpayer.
The finance minister stated that the government has decided to increase planned funding for the Benazir Income Support Programme (BISP) from Rs450 billion to Rs466 billion.
According to Dar, fuel and diesel will be subject to a 60 rupee per liter petroleum development charge (PDL). Kerosene and light diesel oil, on the other hand, won’t be included in the slab of Rs60 per liter, he added.
Dar praised the coalition allies and other stakeholders for their ‘constructive input’ throughout the budget debate.
According to Dar, the SBP has removed all import restrictions, which will ease issues encountered by businesses and traders. Dar also stated that the government is still dedicated to building up foreign exchange reserves.
To help the industrial sector, the central bank announced the removal of all import restrictions on Friday.
According to experts, the action was intended to satisfy the IMF’s requirements.
According to a Friday circular from the SBP, it has been decided to revoke these directives immediately in light of the comments from various stakeholders.
Additionally, SBP states that the directives in EPD Circular Letter Nos. The revocation of Nos. 09, dated May 20, 2022, and 11, dated July 5, 2022, should continue.
The SBP requested banks to facilitate or prioritize imports of energy, agricultural inputs, imports by export-oriented companies, and imports with deferred payment in December of last year.
The IMF program’s restart is essential for the cash-strapped economy, which is undergoing a balance of payments crisis.
The nation hardly has enough foreign exchange reserves to pay for imports for a month. The IMF has insisted on a number of conditions being completed before it releases any more disbursements, despite the fact that it had intended to have $1.1 billion of the money released in November.
Authorities in Islamabad are frantically trying to secure financing from their bilateral and multilateral allies.
Authorities step up their efforts
Shehbaz met IMF Managing Director Kristalina Georgieva on Thursday outside of the Summit for a New Global Financial Pact being held in Paris in the hopes that the lender would approve the monies allotted as part of the bailout.
A few days before Pakistan’s plan is scheduled to end on June 30, the conference is taking place. There is growing speculative interest in the economy’s future without the lender’s support.