The International Monetary Fund (IMF) has advised the revenue authority not to cut the existing corporate-tax rates further in the budget in order to keep revenue mobilization uninterrupted, sources said.
In a meeting with the National Board of Revenue (NBR) on Wednesday, a visiting delegation of the IMF also discouraged offering new tax exemptions in the budget for the upcoming fiscal year (FY) to reduce tax expenditure that is eating up around 2.28 per cent of gross domestic product (GDP).
The IMF team held two separate meetings with senior officials of the customs-VAT and income-tax wings on the NBR premises on Wednesday, for a review of the actions being taken on its loan conditions.
Official sources said the IMF mission laid focus on the fiscal measures the NBR has planned to set out in the budget for the fiscal year (FY) 2023-24 in order to increase the tax-GDP ratio by 0.5 per cent by June 24.
The NBR has already taken initiatives to gradually phase out tax expenditure-conducting analysis.
"The exercise would be done on a regular basis, not on ad-hoc basis," said a MoF source on updates until March 2023.
Tax expenditure-related Statutory Regulatory Orders (SROs) will be atomically repealed with enactment of new income-tax code 2023, he said.
The new law is now under vetting at the Ministry of Law and scheduled to be completed by end of December 2023, he added.
"Fresh tax-exemption SROS will need to be issued after implementation of the new income- tax law."
On the need for increasing the number of taxpayers, he said the number of income taxpayers had increased to 8.7 million (8711,543) until March 2023 under a drive and the move is on to expand the tax net further.
The sources said the tax authority apprised the IMF visiting mission of its status until March 2023 regarding implementation of the dos binding its US$4.7 billion worth of loan approved recently, consequent on government drive to beef up the country's foreign-exchange reserves.
Officials said they provided a broad-based idea on how the revenue authority would bring down the trade-related taxes gradually and shift dependence onto revenue collection on Value-Added Tax (VAT) and Income Tax.
However, the NBR could not provide any 'quantifiable' data considering secrecy of the fiscal measures that usually come through the Finance Act ratifying every year's national budget.
"We have explained our position on gradual rationalization of tariffs as required for graduation from the least-developed-country status by 2026," said a senior NBR official.
The visiting mission sought an outline on how the NBR would bring down tax expenditures by reducing tax exemptions in various sectors, he said.
"The cuts on tariffs usually take place in the budget. We could not provide details on the specific areas where the NBR planned to trim the tax waivers," he added.
Sources said the IMF team laid emphasis on framing Mid-term Revenue Strategies (MTRS) within the shortest possible time so that the government could reduce its dependence on trade taxes.
The NBR official said a committee has been formed to frame the MTRS as the revenue board found the previous MTRS, drafted by the World Bank (WB), not viable for implementation.
"It may take six to seven months to draft the MTRS," the official said.
Officials say the NBR has planned to finalise the MTRS by end-April 2024.
Major conditions from the IMF on fiscal issues include adopting tax measures to increase country's tax- GDP ratio by 0.5 per cent in FY 24 budget, rationalization of tax expenditures, implementation of new income tax and customs act, increase in the number of taxpayers, and installing electronic fiscal devices,
On increasing the tax-GDP ratio, the IMF Programme-2022 Policy Action Implementation Committee of the Ministry of Finance, in a meeting held on March 22, 2023, set a timeline to submit final measures with quantified revenue impacts by end-April 2023 to the parliament.
The committee also set deadline to finalize MTRS by end of April 2024.
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