FBR eyes Rs775bn in fresh taxes next fiscal year

ISLAMABAD: According to a detailed revenue plan drawn up by the tax bureaucracy, and shared with the International Monetary Fund in the last round of meetings, the government is aiming to introduce new tax measures equal to Rs775 billion in the forthcoming budget for the fiscal year 2019-20.

The revenue plan has been seen by Dawn, and detailed conversations with senior officials of the Federal Board of Revenue have provided the context in which it was produced. The plan has to be approved by the cabinet, something that was supposed to have happened in the first week of May but has been delayed due to changes at the top.

When reached for comment, FBR chairman Shabbar Zaidi would not say whether or not he has seen the revenue plan given to the IMF, but told Dawn that his team was in the process of finalising its own plan. “We have been given guidance on the revenue target to be achieved next year and are in the process of seeing how much can be expected from which tax to meet it,” he said.

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He would not share the target in question, nor the quantum of fresh tax measures expected of him. “These numbers are to be finalised in the next couple of days, you will hear about them soon,” he said when asked about the size and nature of the revenue effort he is preparing for the next year.

Revenue plan shared with IMF shows steep, escalating targets for next three budgets

Mr Zaidi repeatedly emphasised that the existing taxpayers would not be squeezed harder. “Three hundred companies in Pakistan pay 85 per cent of the tax,” he said when asked about the fate of those who are within the net, implying that simply being in the net does not mean that one is discharging one’s tax responsibilities fairly.

In the three-year plan given to the IMF at recent meetings, the government is planning to introduce Rs1,640.3bn revenue measures in its second budget (2020-21), followed by tax measures of Rs2,654.5bn in the last year (2021-22) of the IMF programme in order to stabilise the fiscal framework.

The IMF has asked the government for a target of Rs5.5 trillion for the year 2019-20 for FBR revenues. However, the FBR has asked for this to be lowered to around Rs5tr or Rs5.2tr.

As per the plan, the revenue measures will be achieved through broadly increasing the personal tax base, to “rationalise personal income tax rates”, eliminate tax expenditures, administrative measures to improve the assessment ratios of property tax and eliminate low-yielding withholding tax provisions.

As per the proposed plan, the FBR estimates to raise Rs774.9bn of fresh taxes in the budget FY20, Rs1,640.3bn in FY21 and Rs2,654.5bn in FY22. The largest share of the fresh increase will be raised from reviewing and rationalisation of the existing tax rates to the tune of Rs4,981bn in FY20, Rs1,120.2bn in FY21 and Rs1,948bn in FY22, respectively.

Similarly, another Rs250.2bn will be raised from elimination of tax exemptions in FY20, Rs470.3bn in FY21 and Rs603.9bn in FY22bn, respectively. Another Rs28.6bn will be raised from reorganising of federal and provincial tax regimes in FY20, Rs35bn in FY21 and Rs42.1bn in FY22, respectively.

The tax measures also include raising Rs18.5bn from broadening of the tax base in FY20, Rs47.6bn in FY21 and Rs94.4bn in FY22. Moreover, it was proposed that to make the tax system equitable and the simplification of legal provision and reduction in compliance cost will also yield another Rs20.5bn in FY20, Rs32.7bn in FY21 and Rs33.9bn in FY22, respectively.

These are preliminary estimates regarding revenue measures and can change by the time the plan is finalised before announcement of the budget on June 11. “We will review these measures and may consider other tax measures to achieve the overambitious revenue target for next year,” said a high-level FBR source who is part of the process but did not wish to speak for attribution.

These revenue estimates are calculated on the assumption that the country’s economy will grow at 4pc per annum and inflation will remain in the range of 9.4pc, giving revenues a nominal growth rate of 13.4pc per annum.

If undertaken these measures in the next three years, the steps will lift the country’s tax-to-GDP ratio to 15.4pc by the year 2021-22, culminating year of the programme. The government has also projected to increase the number of taxpayers from 1.9m to 2.6m.

The emphasis on a revenue target is a departure from standard practice for the IMF. Previous Fund programmes were built around a fiscal deficit target, and it was left to the government to decide how it was going to be achieved — through some combination of revenue increases and expenditure cuts.

In addition to these revenue measures, the Fund has also asked for concomitant increases in provincial revenues, from current 1.1pc of GDP to 1.5pc by end of the programme. This means the provinces will also have to introduce new revenue streams, besides increasing collection of agriculture income tax.