Federal Board of Revenue (FBR) has denied that any demand of “mini budget” was raised by IMF at conclusion of performance review. There were rumors that the demand had been made for bridging the shortfall in collection of revenues for the first 2 quarters of the current fiscal year. Sources say that the FBR officials said “We have mostly met our second quarter targets”. They claimed existence of 2 problem areas— taxation & electricity — on which the talks focused. No discussion was made on the issue of mini budget during the meetings. “There is nothing like new taxes at the moment”, they said. They claimed that the rumors about mini budget are based on tittle-tattle. Focus of the discussion has mainly been the performance of second quarter.
FBR rejects the introduction of any mini-budget calling it nothing more than rumors
Since the policy talks for setting benchmarks for next year have not started yet so the discussion and rumors about the “mini budget” at this level are premature. FBR’ performance has been considered “satisfactory” albeit the shortage of targeted revenue of Rs. 105 billion in the 2nd quarter of the current fiscal year.
Policy discussion between IMF and Pakistan team will begin from February 10, 2020 and would be concluded by February 13, 2020. Benchmark for next quarter will be decided during this time period and will be presented to IMF Board afterwards.
FBR has informed IMF that even the revised revenue target of Rs. 5.270 trillion is not achievable. The officials have informed reporters privately “We cannot achieve this target. We believe economy is already slowing and have told them that no further taxes can be added because this will cause businesses in Pakistan to close down”. The matter of further reduction in the revenue targets set by IMF will be decided in the policy talks which are about to begin.
“Even the revised revenue target cannot be achieved in the current scenario”, FBR informed IMF
Revenue collections by FBR this year are expected to remain against Rs. 4.8 trillion as compared to Rs. 3.85 trillion last year. Official said, “This will be an increase of Rs1tr in one year.” He added that this is going to be the highest annual growth ever.
On Thursday night Finance Adviser Dr Hafeez Shaikh also claimed the same in a television appearance. He also emphasized government efforts for collection of non tax revenues for contributing towards annual total targeted revenue. However he was shaky while answering question asked by the host about the mini budget.
He replied, “The word mini-budget is used very loosely in this country. Economic management does not mean you give a budget once a year and then you sit. It is a continuous programme wherever there is a weakness you address it, wherever there is an overshoot, you correct it.”
However he avoided answering direct yes or no to any question asked about the mini budget or imposition of new tax measures in near future. He told in the show that the target for non tax revenue is Rs. 1.2 trillion and he was confident enough to express that with the renewals of telecom & proceeds from privatization these may even increase the target.
FBR officials claim that tax department has achieved an average increase of Rs. 400 billion per year in the revenue collection. . “This year we added over Rs. 1tr from last year’s collection, which is a total good number,” they said. In a slow economy this cannot be further increased. FBR has communicated to IMF in the first year of programme, that non tax revenues increase can take the overall revenues collection to over Rs. 5 trillion.
IMF officials are of the opinion that the non tax revenues are one off gain and cannot be considered to meet the revenue performance benchmark over the three years programme. They quoted examples of sale of LNG plants and the profits earned by SBP. FBR officials told the reporters that at the end of revenue it is considered that the primary deficit is not an issue for this fiscal year and even if the FBR performance does not improves, the targets can be achieved.
The official said, “We have conveyed to IMF that major hit is coming from shortfall in revenue collection on imports”. He added that during the first 2 quarters collections from this area have decreased by over Rs. 280 billions.
Tax target for second quarter has been projected at more than Rs. 1,300 billion. However shortfall of about Rs. 150 billion is expected as evident by the economy performance.