The government is gearing up to unveil a mini budget aimed at generating approximately Rs 650 billion in revenue. This initiative will primarily focus on cracking down on tax evaders and increasing the Goods and Services Tax (GST) on properties, tractors, and other items. The efficacy of these enforcement measures and additional taxation steps in boosting revenue remains to be seen.
As part of this mini budget, the government has reached an agreement with the International Monetary Fund (IMF) to revise valuation tables for real estate in 42 cities by the end of September 2024, enabling the Federal Board of Revenue (FBR) to notify updated rates soon. While the FBR has dismissed a proposal to raise the standard GST rate from 18% to 19%, a hike in the GST rate on items such as tractors is still under consideration. Additionally, the FBR is evaluating potential increases in withholding tax rates for property transactions.
The forthcoming mini budget will require approval from Prime Minister Shehbaz Sharif and the federal cabinet. The government may either present a money bill in Parliament or issue a presidential ordinance, with the final decision resting on consultations with political allies, particularly the Pakistan People Party. The FBR is also planning stringent measures against non-filers and under-filers, which may include freezing and suspending bank accounts, imposing bans on property and vehicle purchases, and disconnecting utilities such as electricity and gas.
The chairman of the FBR was scheduled to brief the Prime Minister on the specifics of the mini budget, but this meeting has been postponed. A high-level briefing is expected soon, with a decision likely before the IMF’s Executive Board meeting at the end of September 2024, which will consider the approval of a $7 billion Extended Fund Facility (EFF) for Pakistan.
In discussions, tax authorities revealed that out of 5.5 to 6 million filers for both Income Tax and GST, only 8% (around 45,000) are significant contributors, paying 92% of the total tax. The FBR plans to utilize NADRA’s data and Artificial Intelligence (AI) to identify under-filers and will issue notices urging them to report their transaction details in their tax returns for the current fiscal year.
Moreover, the FBR intends to include details of assets held by salaried employees in both the public and private sectors. Official data indicates a substantial number of individuals are filing Below the Taxable Limit (BTL), including 0.6 million from the salaried class. In the tax year 2023-24, 1.3 million salaried filers contributed Rs251.4 billion in income tax, with only 15,000 individuals reporting an income of Rs10 million or more.
The total number of sales tax filers is reported to be 24,000, with only 5,043 being manufacturers who paid Rs745 billion in taxes last year. There are 80,000 registered companies, of which nearly 6,000 reported over Rs10 million in annual income, while 47,000 filed nil returns. Among the 100,000 registered Associations of Persons (AOP), less than 4,000 reported incomes exceeding Rs10 million, and 60,000 AOPs filed nil returns, collectively paying Rs150 billion in income tax.
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Out of 3.7 million business class filers, 2.4 million submitted nil returns, with only 20,000 showing over Rs10 million in annual income. Among the 2 million salaried class filers, 630,000 also filed nil returns. The FBR has developed separate notices for filers and non-filers. Filers will receive notifications about their transactions for the tax year 2024, with a filing due date of September 30, 2024. Non-filers will be alerted based on their purchases and expenditures, such as real estate plots and vehicles, prompting them to comply and file their income tax returns to avoid penalties.
