ISLAMABAD:
Pakistan has failed to meet the International Monetary Fund’s (IMF) condition to collect Rs10 billion from traders under a new scheme in the first quarter of this fiscal year, managing to collect only 0.001% of the target.
It is rare for an IMF condition to be missed by such a large margin, falling short by 99.99%, reflecting extremely poor performance by Prime Minister Shehbaz Sharif’s government and raises questions about the viability of the new $7 billion IMF deal. For the July-September quarter of this fiscal year, “the floor on net tax revenues collected by the Federal Board of Revenue (FBR) from retailers under the Tajir Dost scheme is Rs10 billion,” according to the IMF. However, sources said the actual collection was not even Rs1 million, or just 0.001% of the target.
The dismal outcome of the Tajir Dost Scheme highlights the government’s leniency toward a class considered close to the ruling party, while salaried individuals are disproportionately burdened by revenue collection efforts. By mid-October, only 575 traders had paid less than Rs1.3 million in taxes, making it likely that the second-quarter target will also be missed. For the first half (July-December), the government must collect Rs23.4 billion from traders under the new scheme, with an annual target of Rs50 billion. This is the second major taxation-related condition that the FBR has missed under the IMF programme, following a failure to meet the first-quarter overall tax collection target by Rs90 billion.
Tax laws authorise the FBR to seize shops and arrest non-compliant traders. However, the FBR has yet to take such actions, as traders have threatened indefinite strikes.
FBR spokesman Muhammad Bakhtiar did not respond to a request for comment.
The IMF has partnered in penalising Pakistan’s already overburdened salaried class for the failures of political governments. One of the core conditions of the new IMF programme is to bring traders, exporters, and farmers into the tax system. However, the PML-N-led coalition government is seen as favouring retailers.
The IMF staff report revealed that the lender faced difficult choices, risking its reputation by approving the $7 billion loan despite significant risks. “Reputational risks would arise if the Fund were perceived as treating Pakistan differently from other members that ostensibly enjoy less support,” the IMF noted. On the other hand, refusing to proceed with the new programme would also raise reputational concerns, as the coalition government or other members could accuse the Fund of not being even-handed.
The collection under the new scheme is separate from withholding taxes collected from traders under section 236H of the Income Tax Ordinance. Traders have the right to adjust withholding taxes paid under section 236H against their liabilities under the Tajir Dost scheme. Despite the government raising taxes on non-filing retailers under section 236H from 1% to 2.5% to force them into the tax net, this has not had the desired effect. Although there was a 150% increase in tax liability in the budget, the increase in collection under section 236H in the first quarter was only 53%, even after including payments from the previous fiscal year.
