IMF raises concerns over Pakistan's missed tax goals, delayed legal settlements

Islamabad [Pakistan], September 26 (ANI): The International Monetary Fund (IMF) expressed serious concerns over Pakistan’s failure to meet tax collection targets and the ongoing delay in resolving tax-related court cases amounting to over PKR 170 billion, currently pending before the Constitutional Bench of the Supreme Court, The Express Tribune reported.

According to The Express Tribune, citing sources, the first round of discussions on Thursday between Pakistani authorities and the visiting IMF mission focused on missed fiscal targets and prolonged legal disputes that continue to hinder the Federal Board of Revenue’s (FBR) ability to meet its collection goals. Many of the FBR’s projections were based on anticipated recoveries from these unresolved cases.

The meeting was part of negotiations for the second review of the IMF programme, which is expected to unlock a USD 1 billion loan tranche. It also marked the final participation of Julieth Pico Mejia, the IMF’s outgoing tax expert for Pakistan, who will be replaced by a representative from Eastern Europe, The Express Tribune reported.

According to officials, the FBR collected PKR 11.74 trillion against an annual target of PKR 12.9 trillion, missing both the revenue goal and the agreed tax-to-GDP ratio target of 10.5 per cent. However, Minister of State for Finance Bilal Kayani noted that the tax-to-GDP ratio still improved by 1.4 per cent over the past fiscal year.

The IMF mission was unable to meet Pakistan’s Finance Minister, Muhammad Aurangzeb, in person due to his ongoing visit to Washington. That meeting is now scheduled for Monday. The mission will continue its review until October 8, which also includes an assessment of Pakistan’s USD 1.4 billion climate resilience programme, The Express Tribune reported.

FBR officials informed the IMF that the shortfall was primarily due to lower-than-expected inflation (which dropped to 4.5 per cent) and sluggish economic growth, particularly in large-scale manufacturing.

These factors reduced the impact of new tax measures, which generated just over PKR 800 billion, well below the PKR 1.2 trillion projected in the budget. Inflation contributed only PKR 766 billion to revenues, as reported by The Express Tribune.

The downturn in the real estate sector was also cited as a factor in the lower-than-expected tax collections.

On the issue of litigation, the FBR had previously assured the IMF that the Supreme Court would issue verdicts by June on high-stakes super tax cases, especially those involving 10 sectors considered discriminatory by some taxpayers and oil companies. However, these decisions are still pending.

IMF officials were informed that, although daily hearings have commenced, only partial progress has been made: arguments in one key case have been concluded, while the government has completed its presentation in another, according to The Express Tribune.

The government now expects verdicts early next month, but sources say the continued delays may again cause Pakistan to miss its quarterly tax targets.

FBR officials were counting on a favourable ruling to secure PKR 177 billion by the end of September. However, with just PKR 2.4 trillion collected so far and only five days left in the month, the board would need to gather PKR 140 billion daily, a task deemed nearly impossible given the current economic slowdown and earlier revenue advances.

Despite the challenges, tax compliance has improved. The number of income tax return filers for the 2024 tax year has increased to 7.7 million, up from 7 million last year, according to The Express Tribune.

The Ministry of Finance also updated the IMF on broader fiscal performance. The government achieved a primary surplus of PKR 2.4 trillion, exceeding IMF expectations and marking the highest primary surplus in 24 years, according to The Express Tribune. (ANI)

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