The government has decided to take a proactive approach and implement tax and non-tax measures from February 15 instead of March 1 — the ostensible deadline proposed by the global lender — to secure a quick release of a $1.2 billion tranche. This decision was made in light of an unexpected relief in tax measures from the International Monetary Fund.
The government anticipated that the IMF would request around Rs400 billion in tax and non-tax measures before the long-delayed talks began, but as the policy-level discussions came to an end, both sides agreed that Rs170 billion would be collected from tax and non-tax measures over the next four and a half months.
The Federal Board of Revenue (FBR) has already produced two ordinances to impose Rs100 billion in new taxes and Rs100 billion in flood charges on imports, according to official sources privy to discussions. The sources stated, adding that things have altered in the last two days of policy-level negotiations, “We were expecting greater demands from the Fund in the areas of taxes.”
The sources, however, did not go into detail about “the change of heart” on the part of the IMF. The sole defense offered was that the Fund might have taken the flood’s consequences on the national economy into account. In addition, the significant devaluation of the rupee is giving FBR additional billions.
Despite the flooding, the government will have to stop the Kissan Package and the export sector’s electricity subsidy as of March 1. According to the FBR tax measures that were agreed upon, the government will earn around Rs70 billion over the next four and a half months by increasing the general sales tax from 17% to 18%. Of the Rs170 billion in agreed-upon tax and non-tax measures, the collection accounts for 41.2 percent.
Additional tax initiatives include raising the withholding tax threshold, raising the regulatory tariff threshold on luxury and non-essential imports, and hiking the federal excise tax on tobacco products. The sources stated, “We have already finished our homework and identified the areas for increased revenue measures.
