On Thursday, Finance Minister Muhammad Aurangzeb declared his intention to raise the tax-to-GDP ratio from the current level of more than 9 percent to 13 percent over the course of the next three years.
“Our basic principles while framing this budget are to expand the tax base,” Aurangzeb stated, speaking at a post-budget press event in Islamabad. It is just not sustainable to have a tax-to-GDP ratio of less than 10%.
“We need to raise it annually in order to reach 13 percent in the next three years,” he said, speculating as to whether any other nation in the world could survive with a tax-to-GDP ratio lower than 10 percent, as Pakistan was able to.
With a total expenditure of Rs18.9 trillion, Aurangzeb unveiled the federal budget for the next fiscal year (FY2024–25) on Wednesday. According to commentators, this budget is essentially “in line with IMF guidelines.”
The budget for Pakistan for the next year aims to raise taxes on the salaried classes and remove tax exemptions for the remainder, with a moderate 3.6% GDP growth forecast and an ambitious target of Rs13 trillion in revenue collection.
During the budget presentation, Aurangzeb stated that expanding the tax base was the intention in order to minimize the burden on current taxpayers.
Speaking at the press conference today, Aurangzeb stated that one of the budget plans’ goals was to discourage tax non-filing.
“I wish to do away with the idea of non-filers. He said, “I believe Pakistan is the only nation with non-filers,” and that non-filers will pay more in “tax in transaction.”
“We aim to end the undocumented economy and digitise finances,” stated the finance minister, emphasising the importance of digitization. Given that the enforcement and compliance were subpar, discussion of the FBR’s performance is also appropriate.
Human intervention tends to decrease with end-to-end digitization. There would be increased transparency, less corruption, and better client service, he continued.
The finance minister answered questions from reporters on the projected federal budget during the briefing.
Regarding the rise in the petroleum levy, Aurangzeb made it clear that the changes would be implemented gradually over the course of the “first fiscal year,” rather than all at once. “We’ll put this into action while keeping an eye on fuel prices worldwide.”
“If you look on an individual level, the burden is not that heavy,” Aurangzeb said, acknowledging that “some changes” had been proposed about the tax slabs and that the salaried class shouldn’t be burdened with progressive income tax.
In response to a question on including traders and retailers in the tax system, the finance minister stated that 2022 was the appropriate year to take this measure and that “retailers are our brothers and sisters.” To lessen the load on them, we must include them in the [tax] system.
“We must make sure that this sector enters the net; we have no other choice. July is when these taxes will go into effect, according to Aurangzeb.
He added that in an effort to “try and document cash transactions as much as possible,” the government would revive the Point of Sale pricing program. Cash transfers are associated with the undocumented economy and digitization. There is Rs9tr in cash on hand, he said.
The finance minister described Pakistan’s “biggest upside”—having the “third-largest freelancer population in the world”—when questioned about youth programs and incentives. Funds would be allotted, he said, and improvements to digital infrastructure would result in “better Wi-Fi for people to work from home.”
Additionally, Aurangzeb emphasized the need for improved financing for small-to-medium-sized businesses (SMEs), saying, “The ministry of finance has already allocated [funds] to SMEs, they will be subsidised.” We’re willing to guarantee a first-loss because banks aren’t showing much interest.
Regarding the significant increase in funding for the Public Sector Development Programme (PSDP), he stated that the government “was trying to make sure that projects already in the works be completed,” pointing out that 81 percent of the cash had been granted for projects that were almost finished.
“We understand the impact of inflation on the common man, but we need to remember that we have made steps in the right direction,” stated the finance minister in reference to inflation.
“If you hand things out, your deficit rises, in which case you print more money, or take a loan and put the burden on future generations — we have done both of these things,” Aurangzeb added, citing Argentina as an example of a country with a significant debt load to the IMF.
