Finance minister Muhammad Aurangzeb has expressed optimism regarding the progression of talks with the International Monetary Fund (IMF). This comes at a time when Islamabad has already missed several IMF obligations.
At a joint news conference at FBR headquarters, Mr Aurangzeb was questioned regarding what measures he would implement to tackle staggering tax shortfalls. For context, it is imperative that Pakistan boost tax collection levels to achieve the revenue target of 12.9 trillion rupees set by the IMF for FY 2024-25.
If Islamabad fails to accomplish this revenue target, experts predict that it could create tensions with the IMF. As per Dawn News, the IMF review mission is due in March which will decide if they are to release the next tranche of the seven-billion-dollar extended fund facility package.
Despite analysts projecting Pakistan to remain unable to achieve the revenue target of almost 13 trillion rupees, Mr. Aurangzeb stated that the IMF will display good faith during the review in March.
However, his confidence was not unfounded as he does have a plan to boost tax collection levels by widening the tax base. Mr. Aurangzeb said that relations with the IMF will sour only if their existing agreements are broken at the time of the review.
The plan in question is to tackle the issue of a narrow and shallow tax base involves digitizing FBR operations to ensure tax evasion is curbed. Furthermore, legislation regarding taxation policies has been introduced in parliament which displays Islamabad’s goodwill and commitment to abide by IMF targets.
Mr. Aurangzeb stressed that he was confident that the federal government would be able to continue with the IMF programme. Moreover, he reiterated how the government will not backtrack on existing measures to boost tax collection levels and that the results of Islamabad’s efforts will be ‘clear in the next six months’.
While Mr. Aurganzeb’s faith in existing measures is reassuring, it does not change the fact that tax collection levels were not sufficiently high enough to meet the target.
The finance minister was able to dispel criticism regarding Islamabad’s failure to follow prescribed healthy tax collection levels though. In the joint news conference, he explained how previous governments would implement arbitrary measures to fulfil monthly revenue objectives. However, the goal for the current administration is to implement structural reforms that make the economy fiscally sustainable.
The successful implementation of Mr. Aurangzeb’s taxation measures might genuinely boost tax-to-GDP from 9 percent to 13.5 percent. However, for small business owners, this poses a significant issue.
Business owners who wish to remain entirely compliant with tax legislation will have to implement stricter auditing of their records. For small business owners, hiring a financial auditor to oversee that financial operations comply with tax laws might prove to be a costly endeavor.
It will be interesting to note if Islamabad can boost taxation levels to meet IMF targets. It will be in Pakistan’s best interests to follow IMF stipulated guidelines as the Fund is not bound to show any ‘good will’ to Pakistan which lawmakers are hoping for.