‘Course correction’ talks begin as IMF mission arrives

ISLAMABAD: Minister for Finance Mohammad Aurangzeb kicked off talks with the International Monetary Fund (IMF), revealing that the country’s tax machinery collected Rs11 billion from retailers, wholesalers, and distributors in the first quarter of the current fiscal year. This development comes as Pakistan continues to work with the IMF to address its economic challenges.

However, the much-hyped Tajir Dost Scheme (TDS) has miserably failed to get the desired results as the tax collected through this scheme stands at just Rs1.7 million by the latest available figures against the agreed target of Rs10 billion for the first quarter. Secretary Finance Imdad Ullah Bosal and Chairman FBR Rashid Mehmood Langrial started the first session with the visiting IMF team scheduled to stay in Islamabad from November 11 to 15, 2024. It remains to be seen how the IMF responds but satisfying the IMF over its concerns seems to be a difficult undertaking. The IMF is suggesting two options either to unveil a mini-budget to meet the revenue shortfall of Rs189 billion or come up with a viable plan to reduce the unbridled expenditures.

One top official said the TDS was just an instrument to bring retailers and wholesalers into the tax net but its objective has been achieved as the FBR managed to collect an additional Rs11 billion from them in the first quarter through the normal taxation regime. Under sections 236G and 236H of the Income Tax law, the FBR hiked the tax rates for selling products to non-filers by almost 10 times so keeping in view stringent actions and fear factors the retailers and wholesalers preferred to come into the tax net and deposited additional tax of Rs11 billion till September 30, 2024. The number of return filers has also gone up substantially so the process of documentation of economy has gained momentum in the country.

Under section 236G related to advance tax on sales to distributors, dealers and wholesalers, every manufacturer or commercial importer at the time of sale to distributors, dealers, and wholesalers, shall collect advance tax at the rate specified in Division XIV of Part IV of the First Schedule, from the aforesaid person to whom such sales have been made. This rate is fixed at 2 percent on the gross amount of sale to distributors, dealers or wholesalers other than the sale of fertilizer. Credit for tax collected under sub-section (1) shall be allowed in computing the tax due by the distributor, dealer, or wholesaler on the taxable income for the tax year in which the tax was collected. Under section 236H related to advance tax on sales to retailers, every manufacturer, distributor, dealer, wholesaler or commercial importer at the time of sale to retailers, and every distributor or dealer to another wholesaler in respect of the said sectors”, shall collect advance tax at the rate specified in Division XV of Part IV of the First Schedule, from the aforesaid person to whom such sales have been made. This rate is fixed at 2.5 percent on the gross amount of sales to retailers. Credit for the tax collected under sub-section (1) shall be allowed in computing the tax due by the retailer on the taxable income for the tax year in which the tax was collected.

The Power Division high-ups briefed the IMF on the imposition of increased fixed rates for on-grid solar energy which will lead to curtailing of solarization. The power division seeks the IMF’s green light on this proposal.

The Fund’s Staff Mission is in the country for meetings to suggest midway course correction to avoid deviations from the fiscal and external framework envisaged for the current fiscal year. The IMF preferred to visit Islamabad earlier than conducting the first review under the $7 billion Extended Fund Facility mainly because of fiscal slippages in the first four months. There were apprehensions that if the course correction was not done immediately then the fiscal hole might widen further and touch irreparable levels by Feb-March 2025. The IMF might not rely on cutting down expenditure heads which will have limited space so the more viable option might be the unveiling of a mini-budget for jacking up the tax to GDP ratio up to the desired level,” said the official.