'Mini-budget' on the horizon to raise Rs650 billion in revenue ahead of IMF package

• FBR plans to restrict non-filers from purchasing properties, vehicles
• Money bill to be tabled after consulting allies, especially PPP.
• Tax-regulatory body rejects proposal to raise GST rate by 1% in totality.

ISLAMABAD: Ahead of International Monetary Fund’s (IMF) $7 billion Extended Fund Facility (EFF), the federal government is set to introduce a mini-budget with an aim to generate around Rs650 billion in revenue, primarily by cracking down on tax evaders and increasing general sales tax (GST) on properties, tractors and other items.

However, a report published in The News stated, it is yet to be seen how much revenue will be fetched through enforcement steps and additional taxation measures.

Accepting another condition tabled by the global lender, the government has also agreed to jack up valuation tables for real estates in 42 cities by the end of September 2024 so the Federal Bureau of Revenue (FBR) can notify the revised rates in the coming weeks.

Meanwhile, the tax-regulatory body rejected the proposal to raise the standard rate of GST by 1% from 18 to 19% in totality. However, the GST rate on items including tractors might be jacked up. For withholding taxes, the rate of selling and purchasing properties might be considered for an increase.

It is not yet confirmed whether the government will allow hiking tax rates or only enforcement will be introduced through legislative changes or an ordinance in the mini budget.

The upcoming mini budget will be introduced after securing approval from Prime Minister Shehbaz Sharif and the federal cabinet. Either the money bill will be laid down in parliament or a presidential ordinance will be promulgated but the final decision will be taken by the government after consulting with its political allies, especially Pakistan Peoples Party (PPP).

The FBR plans some stern measures against non-filers and under-filers including freezing and suspension of bank accounts, imposing a ban on purchasing properties and vehicles and disconnection of utilities mainly electricity, telephone and gas. The rate of withholding tax rates on selling and purchasing properties is also being considered.

Earlier, the FBR chairman was scheduled to brief the prime minister on the exact details of the mini budget on Thursday but it got postponed.

Now it is expected that this high-level briefing is going to take place anytime and a decision to this effect will be taken before IMF’s Executive Board meeting scheduled by the end of September 2024 for considering approval of the $7 billion EFF for Pakistan.

In the background discussions, the tax authorities shared data of both Income Tax and GST and came up with the conclusion that out of 5.5 to 6 million filers in both major taxes, there are only 8% or 45,000 return filers in Income Tax and GST contributing 92% tax.

The FBR would use NADRA’s data for nudging the under filers and written notices will be dispatched to them after identification through Artificial Intelligence (AI). They would be asked to share all details of their transactions to be incorporated in their tax returns for the current fiscal year.

The FBR has also decided to incorporate details of assets possessed by the salaried class belonging to the public sector at the federal and provincial levels. Then the salaried class of the private sector will also be included.

The official data shows large numbers of people in all categories filing Below the Taxable Limit (BTL). This includes 0.6 million filers in the salaried class. The 1.3 million filers in the salaried class paid Rs251.4 billion in income tax in tax year 2023-24. Of those, there are only 15,000 individuals who showed an income of Rs10 million and paid Rs93 billion.

The total number of sales tax filers stood at 24,000 out of which only 5,043 belong to manufacturers who paid out Rs745 billion tax in the last fiscal year. There are 80,000 registered companies of which nearly 6,000 showed over Rs10 million annual income, whereas 47,000 filed nil returns.

Against the registered 100,000 Association of Persons (AOP), less than 4,000 showed more than Rs10 million in annual income, while 60,000 AOPs were nil filers. These over Rs10 million worth of income people paid Rs150 billion income tax.

Against 3.7 million filers belonging to the business class, 2.4 million filed nil returns. Only 20,000 showed more than Rs10 million annual income. Out of 2 million salaried class filers, 630,000 were nil filers.

The FBR has also developed two separate notices for filers and non-filers. For filers, the taxpayer will be informed about his or her transactions made during the tax year 2024 under which the filing due date is September 30, 2024.

The taxpayer will be informed that he had bought a real estate plot or vehicle so his expected income was on the higher side so he should pay the due taxes. For non-filers, the FBR will inform the taxpayer that he had bought a plot, and vehicles and his electricity bills exceeded certain limits showing the monthly income to be hovering around Rs0.3 million. They would be asked to comply and file the income tax returns given the expenditures to avoid any punitive action.