Karachi, January 20, 2024 – In a bid to generate additional tax revenue, Pakistan is gearing up to implement increased tax rates, as outlined in the country report on Pakistan issued by the International Monetary Fund (IMF) on Friday.
The move comes in response to the Pakistani authorities’ commitment to taking contingent revenue measures, aiming to address potential shortfalls in monthly revenue.
The report details specific measures that may be implemented in consultation with IMF staff should cumulative monthly revenue significantly underperform. These measures include adjustments to various tax rates and the introduction of new taxes across different sectors of the economy.
One of the key proposals is the potential increase in the General Sales Tax (GST) rate for textiles and leathers tier-1 from its current reduced rate of 15 percent to the standard rate of 18 percent. This adjustment is anticipated to yield an expected monthly collection of Rs 1 billion.
Additionally, the authorities are considering the implementation of a Federal Excise Duty (FED) of Rs 5 per kilogram on sugar, with an anticipated monthly collection of Rs 8 billion. The move aims to capitalize on the revenue potential within the sugar industry.
In the realm of imports, the government is contemplating raising the advance income tax on the import of machinery by 1 percentage point, with an estimated monthly collection of Rs 2 billion. Furthermore, adjustments to advance income tax on the import of raw materials are being considered, with a proposed 0.5 percentage point increase for industrial undertakings (expected collection of Rs 2 billion) and a 1 percentage point increase for commercial importers (expected collection of Rs 1 billion).
To broaden the tax base, the authorities are also contemplating increases in withholding taxes. A 1 percentage point increase in withholding tax on supplies is expected to generate Rs 1 billion per month. Similarly, a 1 percentage point increase in withholding tax on services is estimated to contribute Rs 1.5 billion per month, while a corresponding increase on contracts is expected to yield an additional Rs 1.5 billion per month.
The move to enhance tax rates and introduce new measures aligns with the government’s commitment to fiscal responsibility and economic stability. While these measures are seen as necessary to boost revenue, they may also spark debates about the potential impact on businesses and consumers.
It remains to be seen how these proposed tax adjustments will be received by the public and various sectors of the economy. The government’s ability to strike a balance between revenue generation and economic growth will be crucial in navigating the challenges ahead. As Pakistan moves forward with these fiscal measures, stakeholders will be closely watching the outcomes and potential implications for the nation’s economic landscape.
