Govt may slap flood levy on non-essential imported items

ISLAMABAD: The government is contemplating different options for slapping one or two per cent Flood Levy on non-essential imported items to fetch Rs 35-70 billion tax revenues, it is learnt.

In a bid to revive the stalled IMF programme, the government is exploring different options to jack up tax revenues in the current fiscal year 2022-23. This under-consideration proposal is aimed at increasing tax revenues and discouraging imports simultaneously at a time when the foreign exchange reserves held by the State Bank of Pakistan (SBP) were decreasing and touched $6.7 billion. A presidential ordinance is on the cards for the curtailment of non-essential imported items. “The FBR is working on a different proposal whereby the Flood Levy at a rate of 1 or 2 per cent will be proposed through the promulgation of an ordinance,” said one top official and added that if the government preferred slapping 1 per cent levy, it could fetch Rs 30-35 billion in the second half (Jan-June) period of the current fiscal year. If a levy is proposed at 2 per cent on all non-essential imported items, it could help fetch Rs 70 billion into the national kitty in the remaining period of the ongoing financial year.

The official said that the rate of the proposed Flood Levy was not yet firmed up. The FBR high-ups are working out different estimates to finalize the rate of the upcoming Flood Levy on imports. The FBR official said the government was firming up a proposal to curtail imports through fiscal measures. Earlier, the State Bank of Pakistan (SBP) used administrative measures for making it mandatory for banks to seek prior permission from the central bank for opening up LCs of over $100,000 keeping in view the dollar liquidity crunch being experienced by the country at the moment.

The Federal Board of Revenue (FBR) has envisaged an annual tax collection target of Rs 7.47 trillion for the current fiscal year and in the first five months, the board has so far materialized Rs 2.688 trillion and is eyeing to collect Rs 0.965 trillion in the ongoing month (December 2022) for achieving the desired target. The FBR requires the collection of Rs 4.782 trillion in revenue in the remaining seven months (December to June) for materializing the envisaged annual tax collection target of Rs 7.47 trillion. The IMF assessed that the wake of import compression and slowdown of economic growth would make it hard for the FBR for achieving its desired target. However, the FBR high-ups say they might require staggering the target, but they are still hopeful that the fixed target of Rs 7.47 trillion was achievable.

The performance of Income Tax remained marvelous as it fetched revenues to the tune of approximately 40 per cent against the set target of almost 20 per cent. At the moment, the government and the FBR are analyzing how much the performance of Inland Revenues including Income Tax, Sales Tax, both at the import and domestic stages as well as Federal Excise Duty, could compensate for the performance of Customs Duty in the wake of dwindling imports. After making the exact assessment, the rate of the proposed Flood Levy would be determined, however, the government is considering the range of 1 or 2 per cent Levy on non-essential imported items.

There is no possibility of slapping Levy on food and medicines which are considered essential items. However, one top official claimed that the import of energy products including POL products, RLNG, furnace oil and coal might remain excluded from the proposed Flood Levy.