Latest news with #Rs14.3
Express Tribune
14-05-2025
- Business
- Express Tribune
Budget talks with IMF start today
Listen to article The International Monetary Fund (IMF) will begin virtual discussions on Pakistan's upcoming budget on Wednesday (today), as the visit of its mission to Islamabad has been delayed due to security concerns in the region, government sources told The Express Tribune on Tuesday. The virtual talks will take place as the global lender has appointed a new mission chief to Pakistan. According to sources, the IMF mission delayed its scheduled arrival in Islamabad on Tuesday due to uncertainty caused by Indian aggression, which affected air travel across the region. However, the sources added that the mission is now expected to travel to Islamabad over the weekend, subject to the security situation. They emphasized that the adjustment would not adversely affect the work or the original programme schedule. The talks are set to begin on May 14 (today) and continue until May 16. "Virtual discussions are expected to be held. For the second and final leg of the talks, the IMF team is expected to arrive in Islamabad on Saturday and stay until May 23," the source said. The IMF's Resident Representative to Pakistan Mahir Binici did not respond to a request for comment on the change in the travel plan. Finance Ministry Spokesperson Qumar Abbasi also did not respond to questions on the change in the travel plans. Meanwhile, the IMF appointed Iva Petrova, a Bulgarian origin staff member, as new Mission Chief to Pakistan. She would join the discussions along with the outgoing Mission Chief Nathan Porter — who served in the position for an extended term. Porter was known for his firm stance on policy issues, but was averse to public interactions. He also kept a tight control over the Finance Ministry's media policy. Mahir did not comment whether both outgoing and new mission chiefs would join both rounds of talks. Petrova, who holds a PhD degree in economics from the Michigan State University, has been serving as the IMF Mission Chief to Armenia. Previously, she had served with the missions to Israel, Iceland and Latvia. The government of Pakistan is planning to unveil the budget for fiscal 2025-26 on June 2 — before the Eidul Azha holidays. This will be Finance Minister Muhammad Aurangzeb's second budget speech, which has to be in line with the parameters that the IMF will set during these talks. The fiscal policy is expected to remain tight in the next fiscal year too. The IMF has asked Pakistan to make a budget on the assumption of having 1.6% of the GDP primary budget surplus, which will require generating about Rs2 trillion over and above the non-interest expenses. The tax target for the Federal Board of Revenue (FBR) is proposed to be 11% of the GDP or Rs14.3 trillion. The IMF would examine whether the government plans to take credibly realistic measures to back the new tax target, said the sources. The size of the federal budget still remains tentative due to redoing of defence needs and the government plans to announce less than Rs18 trillion budget. The overall budget deficit target after incorporating large provincial cash surpluses is projected at 5.1% of the GDP or Rs6.7 trillion, they said. According to the sources, on the first day of talks the Finance Ministry would apprise the IMF mission of the fiscal developments during July-March period of the current fiscal year. It will also share details of supplementary grants approved during the fiscal year. The IMF has set multiple fiscal conditions, whose successful completion has so far helped smooth continuation of the programme despite initial setbacks. Pakistan has met the IMF targets for a primary budget surplus by the federal government, as well as net revenue collection and cash surplus targets by the four provinces. Against a primary surplus target of Rs2.7 trillion, the federal government reported a surplus of Rs3.5 trillion, or 2.8% of GDP. This higher surplus was primarily due to fully booking the annual central bank profit in the first quarter, with the entire estimated profit of Rs2.5 trillion already accounted for. The four provinces collectively generated a cash surplus of Rs1.028 trillion during the first nine months, exceeding the IMF target by Rs25 billion. The federating units also generated Rs685 billion in tax revenues, surpassing the IMF target by Rs79 billion. But against a nine-month revenue target of over Rs9.2 trillion, the FBR pooled Rs8.5 trillion, falling short of the goal by Rs715 billion. The IMF has also asked the government to give an update on any savings from the planned downsizing of the government. The next fiscal year's non-tax target will also be discussed during the first day of the talks, mainly the prospects of petroleum levy collection and the central bank profits. The FBR will give an update on the tax performance in April and the chances for the remainder of this fiscal year. The tax shortfall has ballooned to a staggering Rs830 billion in the first 10 months of the fiscal year, despite the government imposing record additional taxes and reducing refunds. Only in the month of April, the government added around Rs135 billion in the tax shortfall, breaching commitment to the IMF that the shortfall against the original annual target will not be more than Rs640 billion. The FBR has provisionally collected Rs9.3 trillion in taxes by the end of April. Though, the collection was around 27% or Rs1.95 trillion higher than the previous fiscal year, yet it is not enough to stay on track. The sources said that on the first day, the discussions will also take place on the so-called enforcement measures in the areas of track and trace, retailers scheme and compliance risk management. The FBR has miserably failed in all these areas and its collection is largely driven by the additional tax measures.
Express Tribune
11-05-2025
- Business
- Express Tribune
IMF sets stringent fiscal path for next fiscal year
Listen to article The International Monetary Fund has set a more stringent fiscal path for Pakistan by setting the primary budget surplus target for the next fiscal year at 1.6% of the size of the economy which, this time, is projected to be achieved by largely containing expenditures. Compared to this fiscal year's 1% of the GDP primary budget surplus target, which is calculated after making interest payments, the IMF has set the target at 1.6% for fiscal year 2025-26, according to the details the Fund released on Saturday after the approval of the new loan. Unlike in this fiscal year when the primary surplus target had been designed to achieve by solely depending upon increasing taxes, the next fiscal year's goal largely hinges upon restricting expenditures. The details showed that compared to 0.7% of the GDP increase in total revenues to GDP ratio, the IMF has projected a 1.3% of the GDP reduction in expenditure. The IMF macroeconomic table showed that the total revenues of the federal and provincial governments are estimated at Rs15.2% of the GDP or Rs19.6 trillion at next year's projected size of the economy. Out of this, the Federal Board of Revenue's target will be Rs14.3 trillion and around Rs4 trillion is estimated to be recovered on account of non-tax revenues. Rest will come from the provinces. The total expenditures by all five governments estimated at 21.6% of the GDP for this fiscal year, are projected at 20.3% of the GDP or about Rs26.3 trillion, according to the IMF's projections. These are hardly Rs1 trillion higher than this year's estimated expenses, requiring all the governments to keep their belts tightened. Since the primary surplus target is exclusive of interest payments, the Finance Ministry sources said that the containment in the expenditures would largely be on the development side with no room available on the defense spending side. Pakistan cannot afford to reduce or contain the defense budget in the light of new tensions in the region and around 2% of the GDP will be allocated for defense expenditures, said the Finance Ministry sources. The government has indicated to increase the defense budget by at least 18% compared to the last year, they added. Nigel Clarke, Deputy Managing Director of the IMF and Chairman of the IMF board that approved on Friday two packages worth $2.4 billion, said that risks to Pakistan's outlook remain elevated particularly from global economic policy uncertainty, rising geopolitical tensions, and persistent domestic vulnerabilities. He said that against this backdrop, the Pakistani authorities need to maintain sound macroeconomic policies and accelerate reforms to safeguard the macroeconomic gains and underpin stronger and sustainable, private sector-led medium-term growth. The Finance Ministry is planning to allocate Rs921 billion or 0.7% of the GDP for the development budget for the next fiscal year. An amount of about Rs1.35 trillion or little over 1% of the GDP is being set aside for giving subsidies in the next fiscal year, said the sources. Out of this power sector subsidies are estimated at Rs1.04 trillion or 0.8% of the GDP, said the sources. Some of the cabinet ministers are not in favour of allocating a large pie of the budget for the development when particularly it cannot be spent during the course of the fiscal year. There are huge wastages at the name of the development spending, which was also admitted by the Planning Ministry this week. The IMF has projected the overall budget deficit at 5.1% of the GDP or Rs6.6 trillion for the next fiscal year. In terms of the size of the economy, the deficit is 0.8% of the GDP less than this fiscal year but almost at the same level in absolute terms. The IMF on Friday completed the first review of the programme and allowed an immediate disbursement of around $1 billion by turning down Indian's unwarranted opposition to it. The IMF Executive Board also approved the Resilience and Sustainability Facility (RSF), with access of about $1.4 billion. The IMF said that under the bailout package key priorities include entrenching macroeconomic sustainability through consistent implementation of sound macro policies, including rebuilding international reserve buffers and broadening of the tax base. It also emphasized the need for advancing reforms to strengthen competition and raise productivity and competitiveness; reforming SOEs and improving public service provision and energy sector viability; and building climate resilience. The IMF noted that inflation fell to a historic low of 0.3% in April, and progress on disinflation and steadier domestic and external conditions, have allowed the State Bank of Pakistan to cut the policy rate by a total of 11% since June 2024. The IMF said that Pakistan's gross official foreign exchange reserves are projected to reach $13.9 billion by end-June 2025 and continue to be rebuilt over the medium term. It has projected $17.7 billion reserves in the next fiscal year and a low current account deficit of 0.4% of the GDP. However, it does not see any increase in the foreign direct investment in the next fiscal year, estimated at only 0.6% of the GDP for the next fiscal year too. Nigel Clarke, Deputy Managing Director said that "Pakistan has made important progress in restoring macroeconomic stability despite a challenging environment. Since the approval of the Extended Fund Facility, the economy continues to recover, with inflation sharply lower and external buffers notably stronger, he added. "The steadfast implementation of the FY2025 budget and the passage of key fiscal reforms, notably the Agricultural Income Tax, underpin the process of rebuilding policy making credibility. Continuing to mobilize greater revenue from under taxed sectors and the noncompliant will make the tax system more equitable and efficient, according to the IMF. "The State Bank of Pakistan's (SBP) tight monetary policy stance has been pivotal in reducing inflation to historic lows. Monetary policy should remain appropriately tight and data-dependent to ensure inflation is anchored within the SBP's target range, the fund emphasized. A more flexible exchange rate will facilitate the adjustment to external and domestic shocks, aiding the rebuilding of reserves, according to Nigel.
Express Tribune
06-05-2025
- Business
- Express Tribune
Govt may hike agri input taxes
Listen to article The government may double the excise duty rate on fertiliser to 10% and introduce at least 5% new tax on pesticides in the budget, the two critical inputs for the crops that may get expensive amid heightening challenges for the agriculture sector. Among the other proposals, it is considering starting limiting the tax-free status currently available to the Special Economic Zones from fiscal year 2025-26 and reducing the super income tax rate by 2% to 8%, said the tax officials. However, the reduction in the super tax rate, which could cost Rs28 billion to the government, would depend upon finding other tax avenues, they added. The proposals are part of the government's taxation measures that it wants to introduce in the new budget to achieve the overall Rs14.3 trillion tax target in fiscal year 2025-26, according to the senior tax officials. The government is already charging 5% Federal Excise Duty (FED) on fertiliser, which it wants to double for generating additional around Rs50 billion in the next fiscal year, said the sources. They added that the 5% FED might also be introduced on the pesticides. One of the options was that instead of 5%, the duty on pesticides should also be 10% equal to the fertiliser rate. The government has already committed to the International Monetary Fund (IMF) to increase taxes on agricultural inputs, leaving little room for reversal, even if the Pakistan Peoples Party opposes the move in the budget proposal, said the sources. The farmers have long been complaining to the government about the rising cost of their inputs coupled with their low quality. In its meeting with Prime Minister Shehbaz Sharif, the PPP delegation on Monday had urged the government to prioritise the agriculture sector in the next budget to achieve economic growth. The agriculture sector is already struggling after the government abruptly withdrew the agriculture support price mechanism without timely intimating the farmers. The sector has been grappling with issues of climate change, limited water availability and insufficient reservoirs to store water, which is also now at the centre of India-Pakistan tensions. For the first time, the farmers will also pay income tax at rates ranging as high as 45% from the next fiscal year on the income that they earned from January onwards. At the time of negotiations for the $7 billion bailout package, the federal government had promised the IMF that it would end preferential treatments to reduce distortions. The government had explicitly committed with the IMF that "its large-scale interventions in markets for agricultural commodities, including fertilisers, are no longer fit for purpose" of ensuring food security. The low or no FED rate on the fertiliser and the pesticides are described as "distortions stifling private sector activity and innovation, exacerbated price volatility and hoarding, and placed fiscal sustainability at risk." The IMF and the federal government think that the farmers excessively use fertilisers, which is polluting the environment. The sources said that the government was considering the possibility of reducing the super tax rate by 2% to 8%. The business community has long been demanding to completely abolish the current 10% super tax, which the government charges from high earner individuals and companies. However, due to its major contribution in the tax collection, the government is reluctant to completely abolish it. Some of the companies have also challenged the levy in the courts on the point of collecting it from the past. The government is planning to set the revenue collection target at Rs14.3 trillion or 11% of the GDP for the next fiscal year. The sources said that the IMF has already asked to propose tax measures to achieve this target. The discussions with the IMF will take place from May 14th. There is also a view in the government that the Rs14.3 trillion target can be achieved without taking additional measures, as the new target was 16% higher than this year's revised goals. SEZs The government also promised with the IMF that within 10 years, it will completely abolish the tax-free status of the Special Economic Zones (SEZ). As part of the commitment, the government plans to amend the tax laws in the budget to lower the tax-free status to nine years, starting from July, said the sources. Shehbaz Sharif's government has promised with the IMF that it will refrain from providing companies with fiscal incentives such as tax breaks or other subsidies. In another move, it has engaged the AT Kearney firm for conducting an assessment of the fiscal costs and effectiveness associated with each SEZ. The report will be ready before the end of June, said the sources. According to the plan, the government will not provide new fiscal incentives to any new or existing SEZ, and will not renew existing ones. By end-June 2025, the government will prepare a plan based on the assessment conducted to fully phase out all current SEZs incentives by 2035, subject to pre-existing contractual obligations. During the transition period between 2024 and 2035, the government will replace pre existing profit-based incentives with cost-based incentives, subject to compliance with existing legal commitments. For those cases where contractual provisions allow for early termination or renegotiation of existing SEZ incentives, Pakistan will phase out such incentives insofar as allowed by these legal provisions.
Express Tribune
03-05-2025
- Business
- Express Tribune
Exalted tax target
Listen to article The government's intention to raise the taxation bar is fraught with consequences. Having seen a downward revision for the ongoing fiscal year owing to inflation and lower economic growth, the new target of Rs14.3 trillion is an uphill task. In order to attain it, it has to employ some extraordinary tools that may require at least Rs500 billion in additional measures. Will the beleaguered dispensation once again slap the salaried class and squeeze those who are already in the tax net is not difficult to guess! There are no two arguments that tax mosaic should be broadened but the point is how come that would be possible without introducing stringent reforms and bringing the holy cows into it. It is a given that big businesses, real estate, agrarian farming and land wielding are exempt from their due to the national exchequer, and coupled with it is the elite capture of the economy that swallows in more than $17.4 billion per annum, according to the UN. An increase of Rs2 trillion over the ongoing year's target, which would be equal to 11% of the projected size of the economy, will require some tightrope walking and a sustained roadmap. With little or no enthusiastic input from the private businesses in reforming the edifice of taxation, it is assured that the IMF will have the last laugh in setting the target and pointing out sectors that should go under the axe. While road-mapping tax measures, the government should keep in mind that piling on extraordinary burdens on common people would be self-defeating as regards harnessing the economy on modern lines. The FBR is already suffering from a tax shortfall of Rs833 billion in the first 10 months of the ongoing fiscal – something that underscores the inability to withstand tax escalation. A repeat of the fiasco as the tax gurus go on an arithmetic hype for book-keeping will call the bluff and derail whatever improvement the economy has made. It's time for the government to get real and broaden the tax territory by encompassing all in it.
Express Tribune
03-05-2025
- Business
- Express Tribune
Govt may set Rs14.3tr tax target for next fiscal
Listen to article The government may set a new tax target at over Rs14.3 trillion, which is higher by Rs2 trillion over this fiscal year's downward revised goal and may require at least Rs500 billion in additional measures to achieve it. After working out the new tax target figure for the fiscal year 2025-26, the government has begun the exercise to shortlist measures that it would need to show that the Rs14.307 trillion goal is realistic and achievable. Finance Minister Muhammad Aurangzeb is expected to deliver his second budget speech either on June 2 or June 3 before Eid holidays. The Rs14.307 trillion target is equal to 11% of the next fiscal year's projected size of the economy. A senior official of the FBR told The Express Tribune that the absolute tax target number may change, depending upon the size of the economy but the 11% of the GDP figure would be the target. The development came as the deadline to inform the businesses about accepting or rejecting their budget proposals has lapsed. The government had invited proposals from various chambers and business associations in January with a promise to respond to them by the end of April about how many of those can be realistically accepted. When contacted, Finance Minister Muhammad Aurangzeb said that the review of the budget proposals was underway as these proposals are still coming in. The Rs14.307 trillion for fiscal year 2025-26, starting from July, is tentative and subject to the endorsement by the International Monetary Fund that is visiting Pakistan from May 14th to vet the budget. The Rs14.3 trillion target is 16% or Rs2 trillion more than this year's Rs12.3 trillion downward target, the government sources said. It is also higher than the figure that the FBR pitched to the Finance Minister, which was significantly less than the target that the government wants to set for the tax machinery. For this fiscal year, the government had set the original tax target of nearly Rs13 trillion or 10.6% of the GDP. Due to lower inflation and lower economic growth, the target has downward been revised to Rs12.3 trillion but it remains constant at 10.6% of the GDP. The sources said that the authorities will have to take about Rs500 billion worth new tax measures to make the next target realistic and to end any uncertainty associated with it. These measures would come over and above Rs1.3 trillion additional taxes, which were imposed on the people, mostly on the salaried class, to achieve this year's target. Despite putting an extraordinary burden on the people, the FBR has so far faced the tax shortfall of Rs830 billion, underscoring that the economy's ability to pay more has eroded without broadening the base. What is equal to a mini-budget, the government has already increased the petroleum levy rate by Rs18 to Rs78 per liter under different pretext to offset the impact of FBR shortfall. FBR Chairman Rashid Langrial said on Wednesday that next year's budget would be tough in terms of achieving tax targets, forewarning the people about the upcoming taxation measures. OICCI budget proposals Meanwhile, Finance Minister Muhammad Aurangzeb held a meeting with the Overseas Investors Chamber of Commerce and Industry (OICCI) to discuss its budget proposals. The OICCI was not informed whether any of its proposals would be accepted. The association has suggested the government to withdraw Rs5,000 currency notes to discourage cash economy. The size of the informal economy is estimated at least 40% of the formal economy but the government does not seem serious about cracking down on the informal economy. The OICCI also recommended exempting the chemical dealers from 2% withholding tax that is charged from the distributors on supplies to traders. In an important proposal, the association has also demanded to abolish 10% surcharge on individuals earning Rs10 million or more on compliant taxpayers as it places an unjust burden on regular filers. Pakistan's highly marginalized salaried class paid Rs391 billion in taxes in just ten months. The salaried class paid 10% of the total income tax paid by the entire Pakistan compared to 0.6% paid by blue-eyed traders. The OICCI has recommended the government to exempt up to Rs100,000 monthly income from tax, which is justified demand given the fast eroding purchasing power of the people. It has suggested that in order to retain the number of filers, the government may impose Rs1,000 token tax for incomes above Rs600,000 to Rs1.2 million annual income. It has also demanded tax credit for deductible allowances for housing loans, education, and medical expenses. The OICCI has recommended limiting taxation of company contributions to Provident Fund to 10%, eliminating the Rs150,000 cap. It has also sought specific exemption of capital value tax of% on foreign assets for expatriate Pakistanis returning and foreign nationals becoming resident employees. In a major proposal, the OICCI has demanded reducing the corporate income tax rate gradually from 29% to 25% through an annual 1% reduction to align with other emerging economies. It has sought abolishing the super tax gradually over three years, in the first phase cutting from 10% to 6% from July. The OICCI has demanded abolishing 15% income tax on payment of dividends, which takes the rate to 64% for some companies. The OICCI has also demanded to reduce sales tax to 17%, which the government may not accept due to its major dent on the budget. The association has asked to declare petroleum products as taxable supplies allowing input tax adjustments but the FBR showed reluctance due to the IMF programme. It also rightly demanded reducing tax on packaged milk to 5% from 18% to encourage growth in the dairy sector, enhancing nutrition and affordability for the general public. In another major proposal, the OICCI has asked to restore zero rating of sales tax on local supplies under Export Facilitation Schemes (EFS) by withdrawing 18% GST. The IMF is not in favour of withdrawing this tax. The OICCI has asked to reduce federal excise duty on aerated waters to 18% and juices to 15%, which has adversely affected the growth of these companies.
