Pakistan’s Finance Minister Muhammad Aurangzeb presents the government’s proposed budget to the National Assembly in Islamabad, on June 12. (Pakistan Finance Ministry Press Service via AP)
ISLAMABAD — Pakistan’s government has proposed an unprecedented crackdown on tax evasion that would block international travel and deny mobile phone and utility service to people who owe money to the government.
The moves, which include heavy fines on government agencies that fail to implement the penalties, were outlined the government’s proposed budget announced late Wednesday.
Finance Minister Muhammad Aurangzeb presented the country’s budget for the fiscal year through June 2025 to jeers from the opposition. This is the first budget since the heavily indebted South Asian nation formed a new government in March, as it seeks new long-term bailout from the International Monetary Fund.
The budget has a total outlay of $67 billion, up 30% from the current fiscal year. The government has set an economic growth target of 3.6%.
In its latest budget, the government has set an ambitious tax collection target of $46.6 billion, a 38% increase compared with the previous fiscal year. The government’s proposal sharply raises rates on current taxpayers.
People who do not receive a fixed salary, including self-employed workers and contractors, face income tax rates up to 45%, a level that Ikram ul Haq, an expert on the economy and taxation with a doctorate in law, sees as quite steep. The tax on “profit on debt,” or interest paid on bank deposits, has been raised to 35% from 30%.
Haq told Nikkei Asia the budget has no new taxes targeting the rich and powerful, warning, “The enhancement of rates [on] existing taxes will only squeeze already overburdened taxpayers.”
The government sees things differently. “Everyone has to come into the [tax] net,” Aurangzeb told members of the media after the budget was announced.
To ensure a bigger tax take, the government has introduced unprecedented sanctions for registered taxpayers who do not file their returns. It has already started blocking the SIM cards of mobile subscribers found in violation of tax rules on a limited scale, and it has announced the effort will expand once the budget is approved. It will also block the utility connections of taxpayers who fail to file.
The latest penalties go a step further, banning nonfilers from traveling outside of the country, with some exceptions. People going on the Hajj — the Muslim pilgrimage to Saudi Arabia — students and minors are exempt. The government has even announced fines of up to $700,000 for public agencies and companies such as mobile phone carriers that fail to impose sanctions against tax violators.
Many Pakistanis are unhappy with the crackdown, taking to social media to denounce the proposed travel ban.
Haq, the tax expert shares, their skepticism, saying, “[The] high tax targets are not based on pragmatic principles of widening the tax base [and] lower rates. High taxes will lead to further tax avoidance, in addition to affecting the formal sector. It will encourage transactions in the informal sector.”
Uzair Younus, director of the Pakistan Initiative at the Atlantic Council, said the tax targets appear unachievable. “We may either see the government present a mini budget in the near future due to slippages, [or it may] constrain spending, in particular by curtailing infrastructure spending,” he told Nikkei Asia.
The budget is in line with IMF demands. Minister Aurangzeb acknowledged in an interview that the budget has been prepared according to the suggestions of the IMF. “We’re facing an economic imbalance, but structural factors like investment, economic output and exports can help address this challenge,” Aurangzeb said during his budget speech.
Pakistan is negotiating a $6 billion to $8 billion Extended Fund Facility deal with the IMF. One of the IMF’s main demands is that Pakistan substantially increase its tax collection.
“This is most certainly an IMF budget, given the enormous tax increases that are being accounted for,” said Atlantic Council’s Younus.
More than half the government’s budget will be devoted to servicing Pakistan’s ballooning debt. Just 8% of the total outlay will be spent on federal development projects. The rest will go to meeting the government’s day-to-day expenses.
Lawmakers from the Pakistan People’s Party (PPP), coalition partners of the ruling Pakistan Muslim League-Nawaz (PML-N), initially voiced reservations over the lack of development spending. Later, they attended the session to give the government the quorum it needed to submit the budget.
The debate on the budget is likely to start in the National Assembly on June 20 after the Eid holidays next week. The budget must be passed by the assembly before June ends.
source : asia.nikkei