ISLAMABAD:
The International Monetary Fund (IMF) on Thursday pressed Pakistan over the delay in settling more than Rs170 billion worth of court cases pending before the Constitutional Bench, while also questioning the authorities for missing last year’s tax collection targets.
According to officials, the litigation in tax cases — often stemming from vague legal provisions, retrospective measures, or disputes over tax demands — continues to undermine the Federal Board of Revenue’s (FBR) ability to meet its targets, many of which are built on anticipated recoveries from these pending cases.
On the first day of talks to finalise measures for approval of the second programme review and the release of a $1 billion loan tranche, the IMF team was briefed on fiscal developments, missed tax targets, and the prolonged litigation. Sources said the Fund’s main focus remained the reasons behind the shortfall, which had been agreed jointly with Pakistan.
It also marked the final mission of Julieth Pico Mejia, the IMF’s outgoing tax expert for Pakistan, who will be replaced by an Eastern European official.
Against the original annual target of Rs12.9 trillion, the FBR collected Rs11.74 trillion — missing both the absolute collection goal and the agreed increase in the tax-to-GDP ratio to 10.5%.
The FBR could not meet its target but the tax to GDP ratio increased by 1.4% in the last fiscal year, said Bilal Kayani, the Minister of State for Finance, on Thursday.
The mission’s face-to-face kick off meeting with Finance Minister Muhammad Aurangzeb could not take place on Thursday, which is now scheduled for Monday once the minister returns from Washington. The mission will remain in town until October 8 to also review the implementation of Pakistan’s 26th programme — the $1.4 billion climate facility.
The sources said that the FBR apprised the IMF that the tax target could not be achieved because of lower than projected inflation and economic growth. The inflation rate fell to 4.5% while the economic growth, particularly the large-scale manufacturing, also remained far below the needed pace, the IMF was informed.
The IMF was told that the FBR collected additional Rs2.5 trillion in taxes in the last fiscal year and the contribution of the inflation was around Rs766 billion, which was lower than the budgeted estimates. Likewise, the new taxes generated little over Rs800 billion compared to Rs1.2 trillion estimates.
One of the reasons for lower revenue generation from the additional tax measures was sluggish economic growth and slump in the real estate sector, said the sources.
The IMF also took the briefing on the delay in settling the tax cases. The FBR had earlier informed the IMF that the Supreme Court of Pakistan would give decisions in the cases related to super tax, particularly on 10 sectors that caused discrimination in the eyes of the taxpayers and oil exploration companies by June this year.
The IMF was informed on Thursday that the cases still remain pending, although the day to day hearing began from this month. The Fund was further informed that the tax authorities now expect that the apex court may decide the cases by start next month. In one of the cases, the arguments have been concluded from both sides while in another case the government’s legal team has completed the arguments.
After the apex court did not give a decision by June this year, the government had assured the IMF that the matter was expected to be decided by the end of September.
Now it seems that the decision may be announced next month subject to the completion of the arguments. But this will again lead to missing the quarterly tax target by a wide margin, as the FBR was hoping that in case of a favourable decision, it might get Rs177 billion by end of September, said the sources.
As of Thursday, the FBR pooled little under Rs2.4 trillion in taxes. It needs another Rs700 billion in the remaining five days of the month at an average of Rs140 billion per day. Collecting Rs140 billion daily is next to impossible due to the overall sluggish economic growth and already heavy advances taken in the previous months to meet the targets.
The IMF was also informed that the number of income tax return filers till the date have risen to 7.7 million in the tax year 2024 compared to 7 million in the preceding tax year.
The Ministry of Finance briefed the IMF about the fiscal outcomes in the last financial year. The government has met the primary budget surplus target of Rs2.4 trillion along with the total revenues collected by the four provinces.
This was the second consecutive year of primary surplus and the highest in 24 years, surpassing the IMF target. The Finance Ministry tried hard to stay on the fiscal patch but the setback came from the provincial capitals, which were not in the control of the federal government.
The overall fiscal deficit also reduced to 5.4% of GDP or Rs6.2 trillion, which was well below both the original target of 5.9%.
The provincial governments had given the understanding to the IMF and the federal government to generate Rs1.2 trillion cash surpluses. However, the four provinces collectively generated a cash surplus of Rs921 billion, missing the IMF target by 280 billion.
