ISLAMABAD:
Finance Minister Muhammad Aurangzeb expressed optimism on Thursday about the continuation of the International Monetary Fund (IMF) programme but sidestepped queries regarding potential changes to the budget or renegotiation of the annual tax target amidst a gaping revenue shortfall.
Addressing a press conference, Aurangzeb highlighted efforts to expand the tax base. However, the Federal Board of Revenue (FBR) is under pressure, having met only half of its Rs1.37 trillion monthly tax target by Thursday. With just five days left in the month, the FBR still needs Rs1 trillion to align with IMF conditions.
The government hinted at striking a middle ground with commercial banks over the contentious 15% additional advance-to-deposit ratio tax. Meanwhile, non-filers remain free to conduct transactions, except for buying property, cars, or shares.
“When the IMF team arrives, we will discuss matters in good faith. We’re doing everything in our power to meet the target,” the finance minister said, dodging questions about a mini-budget or adjustments to the tax goal. He reassured that the government was steadfast in its IMF commitments.
The FBR faces an uphill battle to collect Rs6.009 trillion for the July-December period. As of Thursday, collections stood at Rs5 trillion, making a mini-budget almost inevitable. The Rs13 trillion annual target seems like a pipe dream now due to the growing gap.
Aurangzeb conceded that this year’s ambitious 40% tax collection growth target, compared to last year’s 29%, was proving challenging. “Some tax policies and economic assumptions fell flat,” he admitted. However, he expressed confidence in avoiding “surprises” for the IMF, which he believes would ensure the programme stays on track.
FBR Chairman Rashid Langrial painted a grim picture during the briefing. Despite issuing tax notices to 169,390 top earners, only 38,002 filed returns, contributing a mere Rs377.6 million—an average of Rs9,920 per filer. This low yield highlights undeclared incomes and ineffective enforcement.
Langrial disclosed plans to issue show-cause notices to 150,000 individuals in the next three months. He revealed that the top 5% income earners—2.7 million people—owe Rs1.6 trillion in unpaid taxes. However, enforcement measures are struggling to close the Rs7.1 trillion tax gap, which has widened by Rs900 billion this year.
Out of 3.3 million top earners, only 600,000 filed returns, contributing Rs619 billion, significantly below their Rs1.6 trillion liability. The gap is exacerbated by loopholes, such as businesses with annual sales under Rs100 million avoiding registration.
Aurangzeb reaffirmed that tax reforms are central to the government’s structural agenda. Minister of State for Finance Ali Pervaiz Malik highlighted that the tough economic decisions taken by Prime Minister Shehbaz Sharif were unprecedented, even by stable governments.
Despite stricter measures, non-filers continue to operate by paying higher taxes. Retailers, described as “a hard nut to crack,” remain resistant to compliance.
The government also indicated a willingness to compromise with banks on litigation cases, emphasizing voluntary settlements based on cost-benefit analysis. A committee led by Deputy Prime Minister Ishaq Dar has been tasked with negotiating with the banks.
Aurangzeb remains hopeful but faces mounting challenges in bridging the tax gap to keep the IMF programme afloat.