Another Mini-Budget on the Cards As Govt Aims to Raise Rs. 60 Billion Via Ordinance

A mini-budget is most likely on the cards as the government wants to raise an additional Rs. 60 billion revenue to offset post-flood aftershocks.

These duties could be imposed as a levy via a Presidential Ordinance, which would keep the money outside of the federal divisible pool and not be routed under the National Finance Commission (NFC) awards. Moreover, the levy won’t be counted as part of the Federal Board of Revenue (FBR) collection because it is not a tax, reported Express Tribune.

The first draft of the Presidential Ordinance is reportedly ready and awaiting approval. It could go into effect as early as Sunday. But if the government decides to include the windfall income tax on commercial banks in the ordinance, it could get delayed.

The Ordinance may also strengthen the government’s case in the eyes of the International Monetary Fund (IMF), provided it takes adequate measures to offset the massive revenue shortfall. In any case, the 1-3 percent flood levy could be imposed on currency-exempted imported goods, except those exempted under the 5th Schedule of the Customs Act or the Vienna Convention.

The initial plan was to impose up to 3 percent additional customs duties to compensate for a Rs. 100 billion deficit in the annual collection target for customs duties. Now, it is possible that a 2 percent tax will be levied on goods that are not classified as luxury items. Added to this, luxury items may be subject to a 3 percent tax as well.

Pertinently, the government has set a customs duty collection target of Rs. 1.150 trillion, which may be missed by more than Rs. 100 billion in the current fiscal year as the FBR on Thursday delayed its decision on imposing a windfall income tax on commercial banks that made billions through currency manipulation.

The total income from foreign exchange earnings by all commercial banks is expected to be around Rs. 100 -110 billion in 2022. The tax regulator has a big job on its hands to determine how much was due to currency manipulation. The windfall tax rate could be as high as 40 percent of the banks’ foreign exchange earnings.

Without the windfall tax, banks will pay 49 percent income tax, including a 10 percent super tax, in 2023. So, if the FBR allows banks to exclude expenses from the foreign exchange earnings portion, the rate could fall below 40 percent, significantly denting the tax collector’s gargantuan revenue target of Rs. 965 billion by tomorrow i.e December 31st, 2022.