Business Recorder
EDITORIAL: A representative of the International Monetary Fund (IMF) has urged the government to focus on broadening the narrow tax base under the third review of the 7 billion dollar Extended Fund Facility (EFF) programme. Pakistan, like other countries on a Fund programme, is bound to have its budget cleared by the Fund staff prior to reaching a staff level agreement that would lead to disbursement of the tranche subsequent to Board approval. Given that the Fund announced in a press release that the third review staff level agreement was reached on 27 March 2026 but with no Board date set yet one can assume that the statement by the representative was not an exhortation but a prior condition. The press release noted that “revenue mobilization efforts have already started to yield results, with the FBR implementing priority actions under its transformation plan and developing key performance indicators to monitor progress. These priorities include strengthening taxpayer audits, expanding the use of digital invoicing and production monitoring, and enhancing the FBR’s internal governance. The newly established Tax Policy Office is developing a medium-term tax reform strategy aimed at ensuring revenue neutrality and tax policy stability. In addition, efforts are underway to enhance fiscal burden sharing between federal and provincial governments and to strengthen public financial management.” Three observations are in order. First, July-March 2026 FBR tax collection shortfall from the downward revised budgeted target was 610 billion rupees – a target that is likely to be further compromised during the remaining three months of the current fiscal year due to the Middle East conflict as economic activity remains severely disrupted in the country - activity linked to revenue collection. Second, the Pakistan Business Council has urged FBR to withdraw “illegal” notices for recovery of default surcharge on super tax from the corporate sector due to no failure on their part to pay due to a high court order, coupled with large outstanding sales and income tax refunds, often for years. Additionally, with reference to the Fund’s claim that “the newly established Tax Policy Office is developing a medium-term tax reform strategy aimed at ensuring revenue neutrality and tax policy stability” it is relevant to note that there exists a slew of research papers by both international and domestic sector experts on the short-, medium- and long-term tax policy reforms, with detailed time-bound recommendations, that meet all critical objectives, but are all gathering dust in relevant ministries. One such exercise was undertaken by the National Tax Reform Commission whose recommendations were endorsed by all, but those are yet to be implemented. The IMF is particularly wary of not duplicating efforts by the other multilaterals and, therefore, it is baffling as to why it would be so insensitive to duplicating previous available research. And finally, the third review press release also noted that “efforts are underway to enhance fiscal burden sharing between federal and provincial governments and to strengthen public financial management.” The provinces’ input to the federal budget is two-fold: the surplus that is shown in the federal budget which is rarely matched in the budgets of the four provinces’ budgets and, where it is matched, it is not realized at the end of the fiscal year; and higher revenue mainly through the agricultural income tax that was agreed by all provinces but whose net collection has been very poor to-date. To conclude, one would have hoped that the FBR, under the administrative control of the Finance Division, had offered to implement recommendations from previous research papers instead of relying on low-hanging fruit, notably taxing the already taxed and on withholding taxes under the sales tax regiment that are an indirect tax whose incidence on the poor is greater than on the rich. The parent organization, the Finance Division, would hopefully slash current expenditure in the forthcoming budget by at least 2 trillion rupees that would reduce the need to levy higher taxes, which is negatively impacting on economic activity with a commensurate negative impact on employment levels. Copyright Business Recorder, 2026
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