ary live: FBR Proposes Tax Cuts to Boost Revenue
The proposed tax cuts aim to generate over Rs100 billion in additional revenue by the end of the current fiscal year, and the FBR has projected that the current high tax rates have reduced transaction volumes in these sectors. The government's plan to rationalize power tariffs, including terminating inefficient power plants, negotiating tariff reductions with independent power producers, and utilizing fiscal space created by reduced debt servicing burden, is also underway.
The Federal Board of Revenue (FBR) has proposed reducing tax rates on the beverages, tobacco, and real estate sectors to boost sales and generate an additional Rs90-100 billion in revenue during the remaining months of the current fiscal year. This move aims to increase volumes of sales in the beverage and tobacco sectors by reducing Federal Excise Duty rates.
The proposal has been discussed with the International Monetary Fund (IMF) mission, but no final decision has been made. The government is likely to face significant challenges in the coming months as it prepares to draw up the next fiscal year's budget, with the International Monetary Fund (IMF) review expected to be successful but the government likely to emerge hamstrung. The budget-making process is expected to be contentious, with the business community pushing for rate cuts and tax relief, while the government will need to plug a Rs600 billion gap in the revenue target.
The government has recently appointed a new adviser to the prime minister, Akhtar, who is expected to play a key role in negotiating with the business community and finding ways to address their concerns. However, it is unclear how much influence he will have, and it is likely that he will ultimately fail to deliver significant changes to the tax burden. The government is planning to introduce new taxes, including a higher advance income tax on imports, a one percent raise in withholding tax on supplies, services, and contracts, and a 5pc hike in the federal excise duty on soft drinks.
The writer argues that the burden of the next round of taxes should fall on the business community, rather than salaried individuals, as the collection of direct taxes has increased by over Rs630 billion in the first six months of this fiscal year. However, this will require skilful politics and eventually, structural reforms. The economy is going round in circles, with the leash shortening and the cycles getting tighter, and that real reforms are needed to break this cycle.
