The Pakistani government is facing a significant shortfall in its revenue target for fiscal year 2023, prompting analysts to suggest that the banking sector could be a prime target for additional taxation levies.
The Finance (Bill 2023) introduced new taxation levies worth Rs170 billion, but the Federal Board of Revenue (FBR) is still Rs381 billion behind its revenue target.
To address this shortfall, the government is expected to implement additional taxation measures, with the banking industry a potential target for incremental taxation levies. Analysts believe that the treasury income from government securities, which has significantly increased due to surging interest rate yields, could be a key area of focus for additional taxation measures.
The IMF has also reportedly urged the Pakistani government to implement additional taxation measures to ensure that revenue targets are met. The country’s tax to GDP ratio is currently estimated to be 9.2 percent for fiscal year 2023, which is significantly lower than other countries in the region.
Despite high inflation and the imposition of heavy taxes via the mini budget, tax collection has seen no growth in recent months. This is because the high inflation environment has prompted many to rely on the cheaper, undocumented (black) economy, bypassing potential taxes. This has further contributed to the decline in Pakistan’s tax to GDP ratio.
In the last two months of the fiscal year, the FBR needs to raise Rs1.8 trillion to reach its revenue target of Rs7.5 trillion. With a potential shortfall of Rs400-500 billion during FY23 if the prevalent trend persists, additional revenue measures are necessary to address the country’s fiscal challenges.
In conclusion, the Pakistani government faces a significant challenge in meeting its revenue targets for fiscal year 2023. With the banking sector potentially emerging as a prime target for additional taxation levies, it remains to be seen how the government will address this challenge and whether it will be able to meet its revenue targets for the year.
