ISLAMABAD: With the International Monetary Fund (IMF) pressing Pakistan hard to enhance revenue collection, the caretaker government has decided to impose 40 per cent windfall tax on the profit earned by banks through the foreign exchange transactions during the years 2021 and 2022.
The move coincides with a successful conclusion of the first review of the $3 billion stand-by arrangement by an IMF team led of its mission chief, Nathan Porter. However, the staff-level agreement is subject to the IMF Executive Board’s approval, which will ensure the disbursement of $710 million as a second tranche.
On Wednesday, IMF Managing Director Kristalina Georgieva had told the Bloomberg News that tax collection was the primary issue for Pakistan, which should be at least 15 per cent of gross domestic product (GDP).
The statement was in line with the overall IMF stance that revolves around reducing budget deficit through enhanced revenue generation as well as removal of subsidies and exemptions and privatisation of loss-making state-owned enterprises (SOEs).
However, one cannot blame the IMF for demanding enhanced tax collection as Pakistan has one of the worst tax-to-GDP ratio in the world, primarily because of its inability to tax the various sectors like retail and real estate at a time when the powerful businesses are enjoying exemptions under different heads.
It means the ordinary people are being forced to pay indirect taxes to a level that has become unbearable amid a record-high inflation and interest rates, causing an unprecedented cost-of-living crisis and a stagnant economy.
Meanwhile, the windfall tax on banks was approved by the federal cabinet on Wednesday by approving a recommendation of the Federal Board of Revenue (FBR), for which a new section 99D has been introduced in the Finance Act, 2023.
The move will help the cash-strapped government generate up to Rs44 billion as it is trying hard to bridge the gap between revenue collection and expenditure.
