Govt slaps Rs215bn more taxes on IMF diktat

ISLAMABAD: Finance Minister Senator Ishaq Dar, while winding up the budget debate on Saturday, announced pension reforms and an increase in tax collection from Rs9,200 billion to Rs9,415 billion.

He said the increasing pension budget had become unsustainable and announced a number of pension reforms, including the establishment of a pension fund. He said rules and regulations for the fund are being framed, and multiple pensions for retirees in grade 17 and above would be abolished. He said retired officers would now receive only one pension. After the death of a pensioner and his or her spouse, the dependents would receive the pension for up to 10 years only. In case of reemployment after retirement, the officer may opt either for a pension or a salary. He stressed that difficult decisions were imperative to steer the country in the right direction.

Experts believe the government, in a bid to appease the IMF, jacked up tax rates on the salaried and non-salaried class of higher income brackets, sale and purchased of property, fertiliser and sugary beverages to fetch an additional Rs215 billion in the national kitty.

The government withdrew the tax amnesty scheme under Section 111(4) of Income Tax law whereby the limit of money received from abroad was enhanced to $100,000 without any question being asked in order to align the budget with the guidelines of the IMF. The government always claimed that it was not tax amnesty but finally had to bow down before the demands of the IMF.

Ishaq Dar expressed his confidence that the Ninth Review, with the International Monetary Fund under the extended fund facility, would soon be concluded, as all the Fund conditions had been met already. The minister recalled that the country demonstrated complete compliance with all prior actions but, due to the gap on external financing, it could not be materialised. He, however, said Prime Minister Shehbaz Sharif held two meetings with the IMF managing director in Paris recently, during which it was agreed that both sides would make a last-ditch effort to complete the pending review.

Although, the minister announced fiscal measures on the floor of the National Assembly, preparation of the amended Finance Bill 2023-24 was still underway and was expected to be approved on Sunday (today).

The finance minister said both sides held consultations over the last three days. He said they had agreed to take additional taxation measures of Rs215 billion, clarifying that it would not burden the poor people.

Similarly, he said they had agreed to reduce current government expenditures by Rs85 billion. He made it clear that the reduction would not affect the annual development plan as well as salaries and pensions of the government employees. The FBR had proposed additional taxes of Rs223 billion, so overall additional taxation measures would fetch Rs438 billion in the national kitty. Dar said the IMF had agreed with Pakistan’s viewpoint.

The finance minister said, “We believe in complete transparency and that is why details of the meetings with the IMF are being shared with the public.” He said once the agreement was reached with the IMF, it would also be uploaded on the finance ministry website. Ishaq Dar said as a result of the understanding reached with the IMF, the annual FBR tax collection target was being enhanced from Rs9,200 billion to 9,415 billion. The total outlay of the budget would now be Rs14,480 billion. He was confident that these measures would also help reduce the fiscal deficit by Rs300 billion.

The finance minister further said the government would continue providing essential commodities to people at reduced rates through the Utility Stores Corporation. For the purpose, an amount of Rs35 billion had been allocated, including Rs5 billion for the Ramazan package and Rs30 billion for the prime minister’s relief package. He said the allocation for Benazir Income Support Programme was also being revised up to Rs466 billion.

Commending the services and sacrifices of the armed forces in defence of the country, Ishaq Dar promised timely release of sufficient funds to them as envisaged in the budget. He said Rs30 billion had been reserved for dealing with the issue of climate change and food security. He said Rs30 billion had been earmarked for solarization of agriculture tube-wells and Rs31 billion for the youth. Dar announced that the limit of investment on pensioners’ benefit accounts under the National Savings Scheme was also being enhanced from Rs5 million to Rs7.5 million.

Highlighting the contribution of overseas Pakistanis, the minister said Rs80 billion had been allocated to facilitate their remittances and it would also include a prize scheme. He said a super tax was introduced last year and it would also be maintained for the next fiscal year. He said they have made it progressive by removing discrimination and adding more slabs to it. As regards the 0.6 per cent tax on cash withdrawal for non-filers, he said it is important to document the economy and enhance tax-to-GDP ratio.

For salaried and non-salaried higher income brackets, the FBR proposed enhancement of rate by 2.5 per cent. Where taxable income exceeds Rs1,200,000, but does not exceed Rs2,400,000, there will be proposed rate of 20 per cent against existing rate of 17.5pc. Where taxable income exceeds Rs2,400,000, but does not exceed Rs3,000,000, there will be proposed rate of 25 per cent against existing rate of 22.5 per cent.

Where taxable income exceeds Rs3,000,000 but does not exceed Rs4,000,000, the proposed rate will be 30pc against 27.5pc. Where taxable income exceeds Rs4,000,000 but does not exceed Rs6,000,000, the proposed rate will be 35pc against the existing rate of 32.5pc. Where taxable income exceeds Rs6,000,000, the proposed rate will be 37.5pc against the existing rate of 35pc.

The petroleum levy was proposed at Rs60 per litre for petrol and diesel from the existing limit of Rs50 per litre; however, the non-tax revenue target was kept unchanged at Rs2.9 trillion for the next fiscal year.

The finance minister clarified that the tax on bonus shares and cash dividends would be paid by the shareholders and not the companies. He said tax on dividends is 15 per cent and 10 per cent on bonus shares. He said the windfall gain tax was not directed against any company or individual. The tax would be applicable from 2021. The tax was in place in many countries and it was aimed at adding value to the system.

Regarding tax on manufacturers of inefficient fans, the finance minister said they were being given six months to upgrade their technology to produce energy-efficient fans. He said that tax amounting to Rs2,000 would now be enforced from January next. The minister pointed out that Rs62,000 tax cases worth Rs3.2 trillion were pending before courts. He said the alternative dispute resolution system was being strengthened to address the issue. A three-member committee, headed by a retired judge of a high court or the Supreme Court, was being constituted to resolve tax-related issues. He said the decisions of the committee would not be binding on the individual taxpayer, but the FBR.

Ishaq Dar said the government would continue following the austerity measures during the next fiscal year as well. The finance minister declared that restrictions on imports had been withdrawn to address problems of the business community. The restrictions were imposed last year to ensure payments of external liabilities. He said the government focus would now be on enhancing the foreign exchange reserves of the country.

The National Assembly also approved demands for grants for different ministries and departments. Finance Minister Ishaq Dar moved the demands for grants. The cut motions, moved by the opposition on Cabinet Division and the Ministries of Communications, Energy, Information and Broadcasting, Interior and Narcotics Control, were rejected by the house.

About the cut motions moved against the Information and Broadcasting Division, Dar rejected the impression that salaries had not been paid to the employees of Radio Pakistan over the last many months. He said a supplementary grant was recently approved by the Economic Coordination Committee for payment of salaries.

The government proposed imposition of 5pc federal excise duty (FED) on fertilisers and the Di-Ammonium Phosphate (DAP) to generate additional revenue of Rs35 billion. The government also jacked up FED on sugary beverages from 10 to 20pc.

Through the amendments to the Finance Bill 2023, the rate of withholding tax (WHT) on buying and selling of property was raised from one to 2 per cent. The measure is expected to raise an additional amount of Rs45 billion. In budget (2023-24), a 2 per cent final withholding tax on immovable property purchases by non-resident POC/NICOP holders was waived if purchased with foreign remittances.

The continuation of taxation measures taken in February 2023 of Rs170 billion would have revenue impact of Rs680 billion in 2023-24. The FBR has taken additional measures of Rs215 billion through amended Finance Bill 2023. Therefore, the total revenue impact of all measures including mini-budget would be over Rs1,115 billion in 2023-24.

In budget for 2023-24, total taxation measures stood at Rs223 billion with relief of Rs23 billion, so net impact of the taxation measures stands at Rs200 billion.

The income tax measures stood at Rs185 billion whereas relief measures at Rs10 billion. The net impact comes to Rs175 billion.

The sales tax measures amounted to Rs22 billion, whereas zero relief measures and net impact of sales tax measures totalled at Rs22 billion.

The Customs Duty measures totalled at Rs12 billion and relief measures of Rs13 billion, resulting in net impact of relief of Rs1 billion. The Federal Excise Duty measures of Rs4 billion were taken in budget (2023-24) with no relief measure.