The upcoming meeting of the IMF executive board with Pakistan’s program on its agenda is a significant opportunity that could bring positive outcomes. However, it is overshadowed by the Federal Board of Revenue’s (FBR) failure to meet tax revenue targets. The FBR is expected to fall short by around Rs200 billion in the first quarter, leading to the likelihood of a mini-budget before Pakistan’s case is presented to the IMF board in the last week of September.
The FY25 budget has imposed heavy taxation measures, including increased taxes on the salaried class, continuation of the corporate super tax, and removal of sales tax exemptions on essential items. Despite this, the government has managed to create some breathing space due to declining inflation and falling international commodity prices, allowing for a reduction in the policy rate by the State Bank of Pakistan.
To address the revenue shortfall, the government is contemplating measures such as increasing the petroleum levy without affecting consumer prices. However, other potential actions, like raising withholding tax rates and eliminating sales tax exemptions on certain items, could pose significant challenges for businesses and consumers.
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The current emphasis on increasing the tax burden without simultaneously addressing government expenditures could potentially worsen the economic imbalance. This is particularly concerning for sectors already in the tax net and the underprivileged. Without a concerted effort to reduce government spending, achieving fiscal consolidation and expanding the tax net may remain unattainable, leading to continued reliance on new taxes with limited effectiveness in generating revenues.
