The government is preparing to introduce a mini-budget to generate Rs650 billion in additional revenue, focusing on cracking down on tax evaders and increasing the General Sales Tax (GST) on items such as properties, tractors, and other goods. This comes amid ongoing efforts to meet the International Monetary Fund’s (IMF) conditions for the $7 billion Extended Fund Facility (EFF).
As part of the agreement with the IMF, the government has committed to raising real estate valuation tables across 42 cities by the end of September 2024, which will allow the Federal Board of Revenue (FBR) to implement revised rates. The FBR has rejected a blanket increase in GST from 18% to 19%, but it may raise GST on specific items, including tractors. The FBR is also considering increasing withholding taxes on property transactions.
The mini-budget will be finalized after Prime Minister Shehbaz Sharif and the federal cabinet approve it. It may either be presented as a money bill in parliament or implemented via a presidential ordinance. The final decision will be made after consultations with political allies, particularly the Pakistan Peoples Party (PPP).
The FBR is planning strict measures to target non-filers and under-filers, including freezing bank accounts, banning property and vehicle purchases, and disconnecting utilities such as electricity, telephone, and gas. The withholding tax rates on the sale and purchase of properties are also under review.
During background discussions, tax authorities revealed that out of the 5.5 to 6 million total filers for Income Tax and GST, only 8% (around 45,000) contribute 92% of the total tax revenue. To address tax evasion, the FBR plans to utilize Artificial Intelligence (AI) and NADRA data to identify under-filers, who will receive written notices asking for details of their financial transactions.
The mini-budget’s introduction is expected to take place before the IMF’s Executive Board meeting in late September, where Pakistan’s financial situation and the approval of the EFF will be discussed.
The FBR has also identified a significant number of taxpayers who file returns below the taxable limit. This includes 0.6 million salaried individuals, with 1.3 million salaried filers collectively contributing Rs251.4 billion in income tax during the 2023-24 tax year. However, only 15,000 individuals reported an income exceeding Rs10 million, accounting for Rs93 billion in taxes.
Additionally, there are 24,000 sales tax filers, with just 5,043 manufacturers contributing Rs745 billion in the last fiscal year. Out of 80,000 registered companies, only 6,000 reported more than Rs10 million in annual income, while 47,000 companies filed nil returns. Similarly, out of 100,000 registered Associations of Persons (AOPs), less than 4,000 reported an annual income above Rs10 million, contributing Rs150 billion in income tax, while 60,000 AOPs filed nil returns.
To ensure compliance, the FBR has developed two types of notices for filers and non-filers. Filers will be reminded of their transactions, such as purchasing property or vehicles, to encourage accurate tax reporting. Non-filers will receive notices based on their expenditures, including property and vehicle purchases and high utility bills, urging them to file tax returns and avoid punitive action.