The government has committed with the International Monetary Fund (IMF) to take additional taxation measures of Rs. 180 billion in fiscal year 2022-23 (FY23), including Federal Excise Duty (FED) of Rs. 60 billion on beverages.
According to the IMF report on the seventh and eight reviews of the extended arrangement under the Extended Fund Facility (EFF) issued on Friday, the government has shared contingency tax measures with the fund including:
- Immediate increase in GST on fuel, as a prelude to reaching the standard rate of 17 percent
- Further streamlining of GST exemptions including on sugary drinks (Rs. 60 billion) and other unwarranted exemptions such as those benefiting exporters
- Increasing FED on Tier I and Tier II cigarettes by at least Rs. 2 per stick with immediate effect to raise at least another Rs. 120 billion in revenue.
The government has also committed to continuing progress on the roll-out of the track-and-trace system, which will create a solid basis for further revenue collection, notably from tobacco sales.
The authorities also seek to bring the service sector, notably retailers, into the tax net by making better use of data from tax collected through electricity bills on commercial connections.
The authorities will seek to expand the Personal income tax (PIT) base by another 300,000 persons through the use of data on the withholding tax of businesses, third-party data, and physical surveys to book new individuals. They will also seek to bring the service sector, notably retailers, into the tax net by making better use of data (e.g., from tax collected through electricity bills on commercial connections).
The authorities have also committed to clear the large stock of income tax refund arrears to Rs. 225 billion by end-July 2022, down from the Rs. 377 billion accumulated by mid-June (a 70 percent increase over the fiscal year due to slow processing).
As of end-June 2022, FBR accumulated Rs. 366 billion in income tax refund arrears, a 67 percent increase over the course of the fiscal year as a result of a backlog in processing refund claims. This stands in clear contrast to sales tax arrears, which have been refunded promptly and regularly without ongoing accumulation of arrears on a monthly basis. FBR has said that it will clear the income tax arrears until the stock is reduced to Rs. 225 billion, thus reversing the arrears accumulation during this fiscal year. This process will be completed by end-September 2022.
FBR also said that it remains committed to limiting any future reoccurrence of these arrears and to improving tax administration to raise the efficiency of revenue collection. It assured to:
- Simplify tax filing and expand e-services for taxpayers;
- Accelerate the resolution of refunds and administrative appeals
- Strengthen the large taxpayer office.
The board further said that its revenue administration priorities include
- Developing an overarching compliance strategy and setting up a Central Risk Management Unit and a Compliance Risk Management Committee at the central level
- Systematic identification and assessment of compliance risks
- Adopting a more project-based approach to addressing specific high-risk areas in tax compliance
- Strengthening data collection and analysis
To support GST harmonization, FBR has established a single filing portal in December 2021. The portal removes the need to file separately with five different tax administrations and simplifies administration with a single tax base, which will critically improve the ease of doing business and enhance the trust of taxpayers, IMF report added.
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