IMF projects Rs490 billion shortfall in tax collection

International Monetary Fund (IMF) calculations suggest that Islamabad might not be able to achieve its annual tax collection target, falling short by a staggering Rs490 billion.

As per the details, earlier this week, a delegation from the IMF began the first biannual review of the $7 billion Extended Fund Facility (EFF) programme. Pakistan believed that talks would remain successful and that the country was on track to receive the $1.1 billion tranche from the international creditor within weeks.

However, reports claim that the IMF’s assessment could strain Islamabad-IMF relations as the international creditor believes the government would fail to reach its tax target of Rs12.9 trillion. Moreover, analysts suggest that the IMF might lay out a slew of austerity measures in order for the economy to get back on the right track.

Lawmakers and authorities may enact significant cuts in the government’s expenditure while simultaneously attempting to boost the tax base. If successfully implemented, these fiscal policy measures could help appease the IMF.

According to reports, Islamabad’s discussions with the IMF could also result in lawmakers passing a mini-budget to correct the budget deficit. However, it will be up to the Ministry of Finance (MoF) to determine if tax hikes or budget cuts are to be used to balance the budget.

While the Federal Board of Revenue (FBR) struggles to generate enough revenue, a delegation of representatives from the tobacco industry have requested for the Federal Excise Duty (FED) to be reduced by 25 percent.

The representatives cited how the extortionate 254 percent hike in the FED was effectively wiping out the willingness of the tobacco industry to comply with domestic tax laws. Individuals involved in the manufacturing process of cigarettes have turned to supplying them illegally.

Reportedly, illicit cigarette manufacturing operations are causing the national exchequer to lose approximately Rs300 billion to Rs1 trillion. If the FBR can even only get the tobacco industry to comply, the projected gap in the fiscal budget will be plugged, potentially even leaving enough funds for the revenue watchdog to post a surplus.

However, key officials from the FBR have voiced their concerns regarding the request. This is because the FBR could lose out on a whopping Rs50 billion, exacerbating the budget deficit instead.