Pakistan asks IMF to cut FBR collection target to Rs5.5t amid coronavirus pandemic

Pakistan approaches IMF to slash FBR’s collection target from Rs5.9 trillion to Rs5.5 trillion.

Top official source says FBR’s target of Rs5,963 for upcoming budget is "too ambitious and cannot be materialized at all.”

IMF official says ready to support Pakistan while ensuring objectives of debt sustainability and strong and sustainable growth are met.

ISLAMABAD: Pakistan has asked the IMF for a cut in FBR’s collection target from Rs5.9 trillion to Rs5.5 trillion for the upcoming budget, citing the third wave of the coronavirus pandemic as a reason.

The IMF had given the FBR the tax collection target of Rs5,963 billion for the upcoming budget 2021-22 against a downward revised target of Rs4,691 billion for the outgoing fiscal year in its latest staff report released after completion of the second to fifth reviews under $6 billion Extended Fund Facility (EFF) for Pakistan.

But Pakistani authorities are arguing that there is a huge gap between the IMF’s envisaged target and potential of FBR to fix the next fiscal year’s target. “It will not be possible to abolish the GST exemptions related to agriculture and health because it will hike inflationary pressures and make the health sector expensive when the third wave of COVID-19 pandemic is gripping the country,” top official sources were quoted as saying by The News.

Read more: IMF's strict conditions also have a political cost: Shaukat Tarin

FBR’s tax revenues could go up to Rs5,287.5 billion with nominal growth of 12% to 12.5% on the basis of revised tax collection of Rs4,700 billion for the outgoing fiscal year. 

With an improved administration and effective enforcement, the FBR could maximum increase its collection up to Rs200 billion, so the FBR could collect Rs5.5 trillion. 

The official said that FBR’s target of Rs5,963 for the upcoming budget is "too ambitious and cannot be materialized at all.”

Budget 2021-22: FBR plans to decrease income tax slabs from 11 to five

FBR chairperson Asim Ahmed said things were "quite fluid" and it would be "hard to predict" at this stage what would be the target for the upcoming financial year. However, he said that the FBR will use technology to broaden the tax base and improve its tax collection.

What does IMF want?

The IMF wants Pakistan to achieve key fiscal objective through broadening the tax base, reduce informality, and simplify and modernize the tax system. 

FBR plans to introduce a high-quality tax reforms package to address this in the FY2022 budget (of about 0.7% of GDP), based on the recommendations of previously provided technical assistance. 

Read more: Pakistan tells IMF it will either add more taxes or increase tax rates in next fiscal year

IMF resident chief in Pakistan Daban Teresa Sanchez said they are ready to support Pakistan navigate the difficult COVID-19 crisis while ensuring the objective of debt sustainability and strong and sustainable growth.