Because of a very narrow base for direct taxes (deductions at source and related collections), the State relies heavily on indirect taxes to fund its expenses which have been growing over the years absent growth in documented revenue streams to balance off
SoDATA (South Data) — The second performance review by the visiting International Monetary Fund (IMF) delegation to Islamabad concluded this week with major focus on tax revenues and electricity tariff — the two cyclical predictable sources of revenue for the government under the loan program.
IMF officials reportedly told Pakistan team that non-tax revenue is a one-time gain which can be raised from sales of LNG plants or profits of the State Bank of Pakistan, but cannot be counted on to meet the benchmarks for revenue performance over the program’s three years.
Last year, the IMF approved US$6 billion loan for a period of three years with conditions that they be met on quarterly and on yearly basis and shall be subject to performance reviews (of each quarter).
The IMF delegation was of the view that the PTI-led government should stick to the tariff targets and implement the power sector plan as per the program design.
That included beside raising electricity tariff handling the circular debt. Circular debt refers to the cash flow shortfall incurred in the power sector from non-payment of obligations by consumers, distribution companies, and the government.
According to media reports, the Power Division was betting that it can still achieve all the targets by delaying the new tariff notification for a few months sighting double-digit inflation and unfavorable political conditions.
The government reportedly discussed proposals on how monthly, quarterly and yearly adjustments should be treated and a uniform tariff could be given to the consumers for a period of 12 to 18 months to save them from the ‘inflationary pressures’.
There has also been revenue collection shortfall by FBR in the first two quarters of this fiscal year (July 2019-June 2020) which came under review.
“We have mostly met our second quarter targets” official sources told Dawn.
FBR blames it on imports for reduction in its tax revenue targets.
“We have conveyed to IMF that major hit is coming from shortfall in revenue collection on imports,” the official said, adding that this collection has declined during the first two quarters.
Last year, the annual tax collected on imports was Rs2tr against a total revenue target of Rs3.85tr — more than 50 percent was from imports.
It is estimated that FBR revenue collection will be around Rs4.8tr this year. This will be an increase of Rs1tr in one year. It has been conveyed to the IMF that FBR will not be able to reach the target of Rs5.27 trillion.
Overall though, the government’s fiscal management and credit rating have previously received nod from the IMF, Moody’s, Fitch and the World Bank amid slowing economy.
A dollar saved is a dollar earned thru austerity continues to be the government’s policy driver, experts say.
Because of a very narrow base for direct taxes (deductions at source and related collections), the State relies heavily on indirect taxes to fund its expenses which have been growing over the years absent growth in documented revenue streams to balance off.
The policy talks, in which benchmarks for the next quarter will be set, have not reportedly begun yet. From Feb 10, the IMF delegation will start policy discussions with the Pakistani team. During this period, next quarter (third) benchmarks will be set with the authorities. These will then be presented to the IMF board.
SoDATA (South Data) is a unit of Irshad Salim Assocs.