ISLAMABAD: Pakistan and the International Monetary Fund have agreed to revise downwards the macroeconomic and financial framework for the current fiscal year, reducing the FBR’s annual tax collection target from Rs12.97 trillion to Rs12.35 trillion.
According to reports, the annual tax collection target of FBR has been reduced by Rs0.62 trillion without any change in the target of 10.6 percent of tax-to-GDP ratio.
The FBR was already facing a revenue shortfall of Rs0.6 trillion in the first eight months of the current fiscal year and now the remaining four months (March-June) will be adjusted on a monthly basis.
On the other hand, the IMF has made it mandatory for the Ministry of Finance to adjust the expenditure proportionately to achieve the target of Rs2.4 trillion basic surplus for the current fiscal year, which has been set in view of the revised target of annual tax collection.
The Ministry of Finance will guarantee in writing that the expenditure will be adjusted in accordance with the reduced tax collection target.
A senior official said that there will be no mini-budget and the government has convinced the FBR that its target should be adjusted according to the downward revision in organic growth rate. The size of the economy has now been reduced from Rs123 trillion to Rs116.5 trillion. So a 10.6 per cent tax-to-GDP ratio means the FBR’s tax collection target will be Rs12.35 trillion.
Pakistan and the IMF are negotiating the completion of the first review under the $7 billion Extended Fund Facility (EFF) and the policy level discussions are expected to be completed on Friday (today).
A senior official said that the FBR conducted a mock exercise in preparation for the IMF talks, in which some internal officials played the role of an IMF review mission and raised possible questions.
According to the official, they convinced the IMF not to raise taxes despite the shortfall in the initial eight months even as the pre-determined contingency plan, which was likely to include a hike in withholding tax or federal excise duty (FED).
Regarding expenditures, the Ministry of Finance assured the IMF that they would be reduced proportionately, but claimed not to cut the development budget. However, the pace of spending on the Public Sector Development Program (PSDP) was extremely slow, due to which barely 650 to 700 billion rupees could be spent despite the allocation of 1.15 trillion rupees in the revised budget.
