Karachi – The Pakistani government is gearing up to introduce a mini-budget aimed at generating an additional Rs650 billion in revenue. This fiscal strategy will primarily target tax evaders and include an increase in the General Sales Tax (GST) on properties, tractors, and other goods.
As part of its commitment to the International Monetary Fund (IMF), the government will also revise real estate valuation tables in 42 cities by the end of September 2024. This update will enable the Federal Board of Revenue (FBR) to adjust and notify new property tax rates.
While the FBR has ruled out a blanket increase in the standard GST rate from 18% to 19%, selective hikes may still be implemented for specific items, including tractors. Additionally, there’s a possibility that withholding taxes on property sales and purchases could rise.
The mini-budget will require the approval of Prime Minister Shehbaz Sharif and the federal cabinet. The final decision on whether to present it as a money bill in parliament or as a presidential ordinance will be made after consultations with political allies, particularly the Pakistan Peoples Party (PPP).
To combat tax evasion, the FBR plans to take stringent measures against defaulters, including freezing bank accounts, banning property and vehicle purchases, and cutting off essential services. These harsh tactics are part of an ongoing effort to bring non-filers and under-filers into compliance.
An important briefing on the mini-budget was initially scheduled for Thursday but has been postponed. The final decision on its introduction is expected to come before the IMF’s Executive Board meeting at the end of September.
The FBR has revealed that only 8% of the estimated 5.5 to 6 million income tax and GST filers contribute a staggering 92% of the total tax revenue. To address this imbalance, the FBR plans to utilize data from the National Database and Registration Authority (NADRA) and employ artificial intelligence (AI) to identify under-filers.
The FBR is also targeting the salaried class, both in the public and private sectors. Detailed information on assets held by public sector employees at both federal and provincial levels will be scrutinized, followed by an examination of those in the private sector.
Official data highlights a significant portion of taxpayers filing returns below the taxable threshold. For example, 0.6 million salaried individuals filed returns under the Below Taxable Limit (BTL) category. In the 2023-24 tax year, 1.3 million salaried filers paid Rs251.4 billion in income tax, with only 15,000 individuals reporting an income exceeding Rs10 million, contributing Rs93 billion of that total.
Sales tax compliance tells a similar story: out of 24,000 sales tax filers, only 5,043 manufacturers contributed Rs745 billion in taxes during the last fiscal year. Furthermore, of the 80,000 registered companies, just 6,000 reported an annual income over Rs10 million, while a staggering 47,000 companies filed nil returns. Among 100,000 registered Associations of Persons (AOP), fewer than 4,000 reported income exceeding Rs10 million, while 60,000 AOPs also filed nil returns.
The business community mirrors these trends, with 2.4 million out of 3.7 million filers submitting nil returns. Only 20,000 reported an annual income above Rs10 million. Meanwhile, 630,000 out of 2 million salaried filers also filed nil returns.
To address these issues, the FBR has developed distinct notices for filers and non-filers. For filers, the notices will highlight their transactions throughout the fiscal year, including property or vehicle purchases, and encourage them to declare appropriate income and taxes. For non-filers, the FBR will issue warnings based on their spending patterns—such as real estate purchases or high utility bills—that suggest they should be paying higher taxes. Non-compliance may trigger punitive measures.
As Pakistan teeters on the brink of yet another mini-budget, all eyes are on the government’s next move and its potential to rectify the country’s fiscal imbalances while meeting the IMF’s stringent requirements.
