Govt eyes 13pc tax-to-GDP ratio within next three years: Aurangzeb

News Desk
Friday, Jun 14, 2024

ISLAMABAD: Defending the taxation measures proposed in the federal budget, Finance Minister Muhammad Aurangzeb stressed on Thursday single digit tax-to-GDP ratio was not sustainable as he indicated it would be increased to 13 per cent in next three years.

Reiterating the need for broadening tax base, the minister at the post-budget news conference here emphasised as per international bench marks, no country could sustain at 9.5 tax-to-GDP ratio without external assistance. “We have to take it up to 13 per cent in next three years gradually,” he said.

Aurangzeb also underscored the importance of doing away with undocumented economy with end-to-end digitisation to minimise human intervention in tax mechanism to ensure transparency and curb corruption.

The minister admitted the Federal Board of Revenue (FBR) could not fully meet the compliance and enforcement standards. He said the government had introduced progressive taxes to increase tax on high income earners.

He further said it was imperative to bring retailers and wholesalers into tax net to share burden. For the purpose, he said the government launched a voluntary tax registration scheme for retailers and wholesalers, however, it got lacklustre response. In May, he added, FBR workforce mobilised and as a result around 31,000 retailers so far had registered themselves with the scheme.

He said the registration would continue and tax would also be imposed from July 2024. “We have no other option but to get this sector into tax net,” he remarked.

The minister said Point of Sale (PoS) scheme would be re-launched to do away with cash transactions. To a question about Petroleum Development Levy (PDL), he said it would be increased gradually and in accordance with international oil prices.Answering a question, the minister expressed the hope that a staff-level agreement with the International Monetary Fund (IMF) would be reached by next month after the budget was presented in line with the lender’s requirements. “The discussion with IMF is moving in the right track [...] we are hopeful and we aim to reach a staff-level agreement in July,” he said.

The budget, which analysts believe has been tailored to meet IMF requirements for securing another bailout of $6 to $8 billion under the medium-term Extended Fund Facility (EFF), marks a 25 per cent increase over the outgoing fiscal year’s outlay.

The minister said virtual discussions were under way with the Fund’s team and they were exchanging views on the budget as well. “I don’t want to say anything in finality other than the fact that it’s moving positively.”

The government has set a challenging tax revenue target of Rs13 trillion for the next fiscal year starting July 1, a near 40 per cent jump from the current year, in the federal budget that looked to strengthen the case for a new bailout deal with the IMF.

As the authorities find ways to increase revenues to reduce fiscal deficit as part of reforms being discussed with the IMF, they have raised taxes that will fetch additional revenues of Rs3.8 trillion in line with the IMF demands.

The government has jacked up taxes on salaried, non-salaried class, real estate, retailers, vehicles, removed GST exemptions and slapped taxes on milk and milk products, mobile phones, and tier-1 retailers of branded stores at 18 per cent.

On a question of reservations by the Pakistan Peoples’ Party on the budget, the minister said all the allied parties were given a briefing on the budget proposal and were taken on board.To a query, he said the increase in petroleum development levy (PDL) would be gradual and linked with international oil prices. “Petroleum levy will not increase immediately. But will be increased in a phased manner over the next fiscal year,” he said, adding the prices of oil in the international market would be taken into consideration when making that decision.

While unveiling the budget a day earlier, he had, for the next fiscal year, proposed an increase in the maximum limit of PDL on diesel and petrol by up to Rs80 per litre. According to Finance Bill 2025, the maximum PDL limit on high-speed diesel oil and petrol has been hiked by Rs20 to Rs80 per litre.

To a question whether salary slab would be revised or remain the same, the minister said taxes for the exempted class and those in the top slab category had been maintained. “If you compare it with the non-salaried class, which includes the professional community, we have increased it to 45 per cent,” he said, adding there were some changes in tax slabs. However, he maintained tax base would be broadened with tax-to- GDP to be taken to 13 per cent.

He further said the concept of non-filers was only in Pakistan; therefore, he added, the tax rate had been increased for non-filers.

The minister acknowledged the significance of freelance professionals in Pakistan, as it has the third largest freelancer population in the world. With regards to the government’s seriousness towards efforts for the information technology (IT) sector, the minister said: “A huge amount has been allocated for the IT sector. Infrastructure in the IT sector could be improved with the allocated money. He said the country’s IT exports stood at $3.5 billion which could be boosted up to $7 billion, provided an enabling environment was offered to the youth.He admitted proper financing was not provided to SMEs because banks had no appetite for them. He promised banks would now come up with specific schemes for agriculture, IT and SMEs.

About PSDP priorities, the minister said the government had focused on completing ongoing projects, therefore, 81 per cent allocations were made for such schemes, while only 19 per cent was allocated for new schemes, which included important projects and those which had foreign funding.