Islamabad, September 3, 2024 – The Federal Board of Revenue (FBR) is exploring the possibility of implementing a mini budget to address a significant revenue shortfall by the end of the current month.
According to reliable sources, the FBR is planning to propose an increase in withholding tax rates to the federal government. This move is aimed at boosting revenue collection amid disappointing tax performance during the first two months of the fiscal year. If the FBR fails to meet its September target, the proposed tax hikes would be introduced through a supplementary Finance Bill.
Withholding taxes account for over 70% of the total direct tax collection in Pakistan. While the government may not increase the standard sales tax rate, it is considering raising withholding tax rates by 1% to bridge the revenue gap.
The FBR has faced a substantial shortfall of Rs 98 billion in tax collection during the first two months of the fiscal year. The net collection of Rs1,456 billion fell short of the assigned target of Rs1,554 billion for this period. Given the decline in import taxes and other factors, the FBR is likely to face a shortfall of nearly Rs 100 billion in September.
The government’s planned autonomous growth of 18% in domestic taxes may be revised downward to 11% in the coming months due to the current economic situation.
Sources within the FBR emphasized that harsh measures such as reprimanding senior tax officials or threatening transfers and postings would not be effective in increasing tax collection. They advocated for a more strategic approach, including digitization efforts to improve the monitoring of withholding taxes through the “SWAPS” system and addressing illegal sales tax adjustments through data analysis and verification.
The implementation of a mini budget would mark a significant step by the government to address the revenue shortfall and ensure financial stability. However, the specific measures and their potential impact on the economy remain to be seen.