Other sectors will be included in the tax net, assures Finance Minister Aurangzeb – Pakistan

Finance Minister Muhammad Aurangzeb on Tuesday assured that other sectors would be included in the tax net, while stressing the need to limit tax exemptions.

His remarks come days after the government presented the federal budget for the coming fiscal year (FY2024-25) with total expenditure of Rs 18.9 trillion, which analysts said is broadly “in line with International Monetary Fund (IMF) guidelines.”

Pakistan’s budget for the coming year targets modest gross domestic product (GDP) growth of 3.6% and sets an ambitious tax collection target of 13 trillion rupees, raising taxes on salaried groups and removing tax exemptions for others.

During the budget presentation, Aurangzeb said the aim was to widen the tax base to avoid burdening existing taxpayers.

Addressing a press conference in Kamalia today, Aurangzeb said the current tax-to-GDP ratio of 9.5 percent is “unsustainable.”

“Schools, universities and hospitals can be charitable and philanthropic. Countries can only function thanks to taxes,” he said, adding that the tax-to-GDP ratio should be increased to 13 percent.

He said this could be achieved in several ways, including: imposing direct taxes where there were none before and the need to limit tax exemptions.

“We have tax exemptions, i.e. expenditure, amounting to 3.9 trillion rupees. We call them expenses, but they are exceptions and we need to reduce them,” he said, adding that the government had “isolated some areas”, including health and agriculture.

The minister assured that the government “is bringing other sectors into the tax net.” He noted that there are about 32,000 registered retailers and added that they will be taxed from July.

“There is no segment that we would not cover with direct taxes,” he emphasized.

“Because if we don’t bring them back, the conversation about what’s happening to the salaried class and the manufacturing (sector) will continue. So there are other sectors that will be included in the network,” he said.

At the same time, Aurangzeb also admitted that the government was unable to enforce existing laws. “It is neither your nor our fault – our tax authority must intensify its actions,” he assured.

He said the implementation of the track and trace system was “sloppy” due to which no revenue was collected.

However, he noted that the government was aware of these shortcomings and consultancy firm McKinsey had been working with the Federal Board of Revenue (FBR) for the past four weeks.

“The goal of this is comprehensive digitalization (…) and thanks to automation there will be less human interaction. I’m not saying it will end interpersonal interactions, just that it will reduce them (…) there will be transparency and less corruption,” he said.

The minister said people were hesitant to join the tax net due to “harassment and frivolous notices”, adding that he was “also on the receiving end” as he worked in the private sector for six years.

The minister also announced the end of airport outsourcing, and the handover of the Karachi airport to the private sector is scheduled for July or August this year.

The minister said the federal government would close ministries or departments transferred to the provinces, adding that this was to reduce spending and improve efficiency.

He said Prime Minister Shehbaz Sharif has already announced the closure of Pakistan’s Public Works Department, which would help reduce the financial burden on the government.

He further said that the government will privatize state-owned enterprises (SOEs). He cited the example of Pakistan International Airlines (PIA), claiming that its liabilities of Rs 622 billion had been transferred to the government.

“Privatization of state-owned enterprises will help reduce the financial burden on the government and improve efficiency,” he said.