Government Faces Revenue Shortfall: Options Limited to Tax Increases and Mini-Budget

Islamabad: In light of a decline in revenue collection by the Federal Board of Revenue (FBR), the government has few options left to boost income, primarily involving tax increases and the implementation of a mini-budget. A draft ordinance has been prepared, which is expected to be presented to the federal cabinet soon. An International Monetary Fund (IMF) delegation is anticipated to visit Islamabad before December, seeking measures that will satisfy their requirements.
While Pakistani officials state that the IMF team will visit in December 2024, insiders insist that an earlier visit is more likely. The draft ordinance is expected to be issued within this month. FBR high officials suggest that the proposed ordinance may include stringent measures such as freezing bank accounts and increasing withholding tax rates on property and vehicle purchases.
A high-level source confirmed to The News that FBR could raise withholding tax rates on all imports and property transactions. Despite these measures, economic managers also face the option of tightening the development budget (Public Sector Development Program – PSDP), as only 22 billion rupees of the 1.1 trillion rupee budget have been utilized in the first quarter from July to September.
FBR is currently grappling with a revenue shortfall of 189 billion rupees over the first four months, raising concerns that tax collection may fall significantly in the first half of the fiscal year. Projections indicate that the shortfall could reach 321 billion rupees, leaving the government with no choice but to implement a mini-budget in line with IMF agreements. While the Ministry of Finance is hesitant to cut expenditures, it remains to be seen how the government will manage to satisfy IMF requirements.
Recently, a meeting chaired by the Minister of State for Finance and the Secretary of Finance highlighted concerns over the projected tax shortfall of 321 billion rupees for the first half of the fiscal year. If the shortfall continues to rise, the Ministry of Finance may need to impose further cuts to uncontrolled expenditures.
An official noted that the economy is already under pressure, and raising tax rates could exacerbate the situation, potentially leading to further contraction. As the situation unfolds, the FBR spokesman issued a statement denying reports from certain media outlets that the IMF had rejected FBR’s request to revise targets, urging national media to avoid spreading misinformation that could negatively impact national interests.