IMF proposes Rs15tr tax revenue target

ISLAMABAD:

The International Monetary Fund (IMF) has proposed setting a tax revenue target of over Rs15 trillion in the federal budget for the upcoming fiscal year 2024-25.

However, the finalization of this target will take place following detailed discussions in ongoing virtual negotiations between the government and the IMF official which are expected to conclude soon.

According to sources in the Ministry of Finance, the IMF is likely to introduce new conditions in the Memorandum of Economic and Financial Policies (MEFP) as part of the staff-level agreement for the release of the next $1 billion tranche to Pakistan.

However, in response to a request from the Federal Board of Revenue (FBR), the IMF has agreed in principle to grant partial relief by reducing the withholding tax rate on property purchases by 2% starting in April 2025. The withholding tax rate for property sellers, however, will remain unchanged.

The sources said Pakistan and the IMF are engaged in virtual negotiations, during which further stringent conditions for the $1 billion tranche may be imposed and new financial targets may also be set for Pakistan.

The government is expected to face financial structural benchmarks in the new fiscal year including new revenue collection targets to increase tax income. These targets are likely to be finalized through ongoing virtual discussions.

The IMF and Pakistani officials have also discussed measures to curb tax evasion.

The proposed tax revenue target for the next budget exceeds Rs15 trillion, with discussions underway to raise the tax-to-GDP ratio to 13%. The government aims to collect Rs2.745 trillion in non-tax revenue in the upcoming fiscal year.

Economic growth is projected to exceed 4% in the next fiscal year, according to ministry sources.

During the recent virtual meeting, the IMF agreed to lower the federal excise duty rate on property buyers, though the tax on sellers will remain unchanged. At FBR’s request, the IMF has agreed to reduce the tax collection target for March 2025 by Rs60 billion.

Regarding property taxation, the FBR had requested a reduction in withholding tax rates for both buyers and sellers under Sections 236C and 236K.

However, the IMF has only agreed to lower the tax rate for buyers by 2% under Section 236K. Moreover, the IMF has approved the collection of Rs1.257 trillion from banks to address the issue of circular debt in the power sector.