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IMF’s Tax Refund Condition To Be Missed By Pakistan

Pakistan is going to be unable to fulfill International Monetary Fund’s condition to refund Rs75 billion to taxpayers in the first quarter despite an incentive by the monetary organisation to reduce the tough primary budget deficit reduction target if Pakistan implement its tax refunds effectively.

According to a report in Express Tribune, under the $6 billion loan deal between the international lender and Pakistan, the latter is mandated to decrease its primary budget deficit to Rs276 billion in the current fiscal year from last year’s deficit of Rs1.350 trillion.

According to IMF, the target for the country’s primary budget deficit in the first quarter is Rs102 billion. This amount can be relaxed if the government pays at least Rs75 billion in tax arrears.

According to the Federal Board of Revenue, the Pakistani Tehreek-e-Insaf has cleared Rs22 billion of the arrears against a target of Rs75 billion, which amounts to about 30 percent.

If the government releases the remaining Rs53 billion, it would have a negative effect on the quarterly revenue target of Rs1.071 trillion given by the IMF. For the July-September quarter, the FBR had set the target at Rs1.111 trillion.

The reason why there exists such a low disbursal of tax refunds is due to the annual revenue collection target of Rs5.5 trillion.

Moreover, as opposed to a low target of Rs644 billion, the FBR could only collect Rs580 billion in July and August.

Sources informed media that the revenue authority plans to release a certain portion of the refunds through promissory notes issued at a fixed rate of 10%. They said the promissory notes could not be issued any faster as banks were reluctant to accept these notes as collateral.

Sources further said that the State Bank of Pakistan (SBP) did not want to treat these notes as part of the statutory liquidity ratio of banks.

The State Bank is of the view that these notes could not be considered debt because of certain legal obstacles. Sources said that the FBR was making efforts to clear exporters’ refunds out of its daily collection. Moreover, because of steep revenue targets, the arrears could only be cleared against the promissory notes.

For the revenue authority, the aims of increasing revenues and clearing refunds were contradictory in nature. FBR frequently shows inflated collections by blocking refunds.

Furthermore, according to reports, Adviser to Prime Minister on Finance Dr Abdul Hafeez met with FBR officials to find out the status of tax refunds and whether it was possible to achieve the annual revenue collection target of Rs5.5 trillion.

Sources informed media that according to preliminary assessments, it was not considered possible to collect more than Rs4.8 trillion considering the current economic conditions.

Last week, the National Assembly Standing Committee on Finance had been informed by FBR’s Member Inland Revenue Policy Dr Hamid Atiq Sarwar that the revenue authority may collect between Rs4.8 to Rs5.2 trillion in taxes.

Furthermore, a senior FBR official informed media that the total outstanding funds stood at Rs500 billion, and that the FBR had not shared the arrears with IMF and had only shared the processed refunds.

As part of the upcoming review of the IMF programme, the refund payment target will come under discussion. The government’s view is that the current year’s refund payments should be according to the current year’s flow of refunds.

The government had to return Rs75 billion to the taxpayers in the first quarter followed by a payment of Rs57.5 billion in each remaining quarter according to the IMF indicative target.

Furthermore, the IMF staff-level report has indicated that the monetary organisation has linked the refund payments with the primary budget deficit target. According to the Memorandum of Understanding signed by Pakistan and the global lender, the ceiling on the general government primary budget deficit will be adjusted downwards by the whole amount of any excess in the cumulative flow of tax refund arrears of the respective indicative programme targets.

The primary budget deficit target of Rs102 billion can be relaxed if the government releases more than Rs75 billion in refunds before September 30. Apparently, the government has missed the chance to provide relief to industrialists by not taking advantage of this incentive.


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