Govt agrees to raise taxes on various sectors

The government has agreed on contingency revenue measures with the International Monetary Fund (IMF), which includes imposing a federal excise duty (FED) of Rs5 per kilogram on sugar to generate additional revenue of Rs8 billion per month during 2023-24.

The first review report under the Standby Arrangement published by the fund revealed that the government has agreed upon several contingency revenue measures with the IMF in case of a revenue shortfall.

The report said, “should cumulative monthly revenue significantly underperform, the government, in consultation with IMF staff, would implement selected measures.”

If the monthly cumulative FBR revenue falls short of the projected target by 1.5% in Q2, 0.5% in Q3 or 0.1% in Q4, the government will evaluate the adoption of one or more of these contingency measures.

Apart from the FED of Rs5 per kilogram on sugar, it agreed to raise the GST rate for textiles and leathers tier-1 from its reduced rate of 15% to the standard rate of 18%, to generate an additional revenue of Rs1bn per month.

Morover, it has agreed to increase advance income tax on import of machinery by 1 percentage point to generate an additional revenue of 2bn per month.

Contingency revenue measures also includes increasing advance income tax on import of raw materials by industrial undertakings by 0.5 percentage points, with an expected collection of Rs2bn per month.

The report further revealed that the government, if deemed necessary, will increase advance income tax on import of raw materials by commercial importers by 1 percentage point, with an expected collection of Rs1bn per month.

Additionally, it will increase withholding tax on supplies by 1 percentage, expecting an additional collection of Rs1bn per month.

In case of a significant shortfall in monthly revenue, the government, in consultation with IMF staff, will increase withholding tax on services by 1 percentage point to generate an additional revenue of PR1.5bn per month.

To enhance revenue further, a 1 percentage point increase in withholding tax on contracts is planned, targeting an additional monthly collection of Rs1.5bn.

The IMF report highlighted that against a budgeted projection of Rs1.113 trillion in SBP dividend transfers, the realized amount fell short by Rs141bn due to variations in interest rates, exchange rates and volume of liquidity operations.

Although the robust revenue performance in Q1 may mitigate some of this shortfall, achieving the primary deficit target hinges on the effective execution of all FY24 budget measures, as well as measures to expand the tax base, including issuing tax notification to more than 900,000 non-filers who have already been identified by the FBR.

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