Finance Minister Mohammad Aurangzeb has recently presented the Tax Laws Amendment Bill 2024 in Parliament, aiming to remove the non-filer category for specific sectors. However, this decision may create significant hurdles in achieving the government’s ambitious revenue collection goals, as reported by The News.
Senior officials have indicated that the Federal Board of Revenue (FBR) had imposed tax rates for non-filers that range from 200% to 300% as part of the 2024-25 budget. Abolishing this category for certain sectors could adversely impact revenue generation efforts.
With a severe revenue shortfall anticipated to persist in the current month, the government hopes to reach a “breakthrough” in ongoing negotiations led by Deputy Prime Minister Ishaq Dar with banks in the coming days. This could lead to an increase in tax contributions from the banking sector this month.
If successful, the breakthrough could reduce the expected revenue shortfall for December by around Rs50 billion; without it, the shortfall could reach Rs490 to 500 billion in the first half of the fiscal year. However, should Parliament approve the Tax Laws Amendment Bill 2024, the existing practice of collecting increased taxes from non-filers would likely be abandoned, potentially leading to immediate revenue losses.
The FBR has suggested strict measures against non-filers, such as preventing them from purchasing properties, new cars over 800 cc, and investing in securities and mutual funds. Nonetheless, implementing these measures legally could take many months, a challenge for the FBR as it strives to meet its revenue target of Rs12.97 trillion.
As of now, sales tax registrations have risen to 367,000 this fiscal year, compared to 337,000 at the end of June 2024, indicating a growth of approximately 40,000 registrations. While the proposed tax changes may help foster a culture of tax compliance in the medium to long term, they do not directly address the current revenue shortage.
The exact size of the shortfall will be clearer after December 25, when corporate sector returns are due by December 31. The FBR is working diligently to maximize collections, but the shortfall is expected to exceed Rs340 billion, possibly adding another Rs100 billion to the deficit.
The government has dismissed the idea of a mini-budget within this fiscal year but will need to take action before the International Monetary Fund (IMF) review mission arrives in Islamabad in mid-February 2025.
When contacted, high-ranking FBR officials acknowledged that the proposed Tax Laws Amendment Bill 2024 could lead to revenue losses due to the abolition of the non-filer category in certain areas. They emphasized that significant reforms would be necessary to address the challenges ahead.
In response to additional inquiries, a top official mentioned that the Dar-led committee has a meeting scheduled for Tuesday but could not predict its outcome at this time.
