Karachi, November 12, 2024 – As Pakistan faces a widening revenue gap, the government is preparing for the introduction of another mini budget to bridge the anticipated fiscal shortfall for the year 2024-25. With the International Monetary Fund (IMF) delegation currently reviewing the nation’s progress under the Extended Fund Facility (EFF), sources indicate that the mini budget is expected to follow closely after the completion of the IMF team’s visit.
According to officials from the Federal Board of Revenue (FBR), the upcoming mini budget will be crucial to meeting the revenue collection targets, which are under significant pressure. The FBR has projected a shortfall of Rs 230 billion in the second quarter (October-December) of the current fiscal year. The first four months of 2024-25 have already shown a concerning trend, with the FBR collecting Rs 3,440 billion, falling short of the target of Rs 3,636 billion by Rs 196 billion.
To address this shortfall, the government has agreed to implement several contingency revenue measures, which will form the crux of the mini budget. These measures are designed to generate approximately Rs 10.8 billion per month in additional revenue. Among the key steps is an increase in federal excise duty (FED) on aerated and sugary drinks, as well as a rise in withholding tax rates on the import of machinery, raw materials, and services. Collectively, these adjustments are expected to raise Rs 97.2 billion in the remaining three quarters (October-June) of the fiscal year.
The IMF, in its latest report, highlighted that should the three-month rolling average revenue collection fall short by just one percent, the government would need to adopt one or more of the following contingency measures: an increase in advance income tax on machinery imports by one percentage point, which is expected to generate Rs 2 billion per month; an increase in advance income tax on raw materials for industrial undertakings by one percentage point, projected to yield Rs 3.5 billion per month; and a rise in advance income tax on raw materials for commercial importers, anticipated to collect Rs 1 billion per month.
Additionally, increases in withholding tax rates on supplies, services, and contracts, along with a five percentage point hike in FED on sugary drinks, are all part of the revenue-generating strategy. If adopted, these measures will collectively help mitigate the looming fiscal gap, with a total expected revenue generation of Rs 97.2 billion through the mini budget.
The looming mini budget underscores Pakistan’s struggle to meet its fiscal targets while balancing the demands of the IMF. As the government moves forward with these measures, the effectiveness of the mini budget will be closely monitored by both domestic and international stakeholders.
