The federal government is set to unveil the much-anticipated Rs18.5 trillion budget for the fiscal year 2024-25 on Wednesday (today), aiming to secure a new International Monetary Fund (IMF) bailout.
Finance Minister Muhammad Aurangzeb will present the budget in the National Assembly, with the ministry having completed its preparations.
This budget announcement follows the government’s statement that the expected economic growth of 2.4% for the current year will fall short of the 3.5% target, despite a 30% increase in revenues compared to last year and the fiscal and current account deficits being under control.
The government is expected to set the Federal Board of Revenue’s (FBR) tax collection target at Rs12.97 trillion for the next fiscal year, up from the revised estimate of Rs9.252 trillion for the outgoing financial year. The FBR had initially set a tax collection target of Rs9.415 trillion for 2023-24, which was later revised down to Rs9.2 trillion.
To pursue fiscal consolidation, the FBR aims to reduce the overall fiscal deficit from over 7.6% of GDP in the outgoing fiscal year to 6.5% of GDP in the next budget. This will be achieved through enhanced revenue efforts and curtailing unbridled expenditures.
Significant tax revenue mobilization efforts will focus on Inland Revenue (IR), including income tax and GST, aiming to increase revenues by Rs1.7 trillion and Rs1.3 trillion, respectively, through nominal growth, effective enforcement, and substantial taxation measures.
Out of the Rs12.97 trillion annual tax collection target for the next budget, the FBR anticipates collecting Rs5.512 trillion through direct taxes, including Rs5.45 trillion in income tax, Rs4.919 trillion in sales tax, Rs0.948 trillion in federal excise duty, and Rs1.591 trillion in customs duty.
To expand the narrow tax base, the IMF suggests accessing detailed data on taxpayers, including their socio-economic characteristics and the taxes they owe and pay. Access to taxpayer-level data from the revenue administration is critical for achieving this objective. Additional data required may include household budget surveys, business surveys, social security data, property information, and other relevant data depending on
the type of analysis undertaken by the tax policy units (TPUs). Privacy and confidentiality concerns will need to be addressed in establishing data-sharing arrangements between the TPU and government bodies that own the data.
The FBR will need to leverage technology to handle large data sets that require exchange, storage, management, and analysis. Additionally, the government plans to cut expenditures on pension reforms, subsidies, and the costs associated with state-owned enterprises.
With a total outlay exceeding Rs18.5 trillion for the upcoming budget, the government will need to mobilize both tax and non-tax revenues effectively while managing expenditures.
