On Tuesday, Finance Minister Muhammad Aurangzeb underlined the need to cut back on tax exemptions while providing assurances that other industries would be included in the tax net.

His remarks come days after the government presented the federal budget for the upcoming fiscal year (FY2024-25) with a total outlay of Rs18.9 trillion, which analysts said was broadly “in line with International Monetary Fund (IMF) guidelines”.

The budget for Pakistan for the next year aims to raise taxes on the salaried class and remove tax exemptions for the remainder, with a moderate 3.6% GDP growth forecast. It also sets an ambitious target of collecting Rs. 13 trillion in taxes.

During the budget presentation, Aurangzeb stated that expanding the tax base was the intention in order to minimize the burden on current taxpayers.

Aurangzeb declared today at a press conference in Kamalia that the existing 9.5% tax-to-GDP ratio was “not sustainable.”
Hospitals, colleges, and schools may all run on generosity and philanthropy. “Taxes are the only way for countries to function,” he stated, emphasizing the necessity to raise the tax-to-GDP ratio to 13 per cent.

He said that there were several ways to achieve this, including imposing direct taxation where previously there was none and the need to reduce tax exemptions.

“We have tax exemptions, or expenditures, of Rs3.9tr. We call them expenditures but they are exemptions and we need to reduce those exemptions,” he said, adding that the government had “ring-fenced some areas”, including health and agriculture.

The minister assured that the government was “bringing other sectors into the tax net”. He noted that approximately 32,000 retailers had been registered, adding that they would be taxed from July onward.

“There cannot be a segment which we do not bring under direct taxes,” he stressed.

“Because if we do not bring them in, then the conversation of what is happening with the salaried class and manufacturing [sector] will keep continuing. So there are other sectors that are going to be brought into the net,” he said.

At the same time, Aurangzeb also acknowledged the government’s inability to enforce existing laws. “This is not your fault, or our fault — our tax authority has to step up,” he asserted.

He said that implementation of the track and trace system had been “lax”, because of which revenue was not collected.

However, he noted that the government was aware of these shortcomings and consulting firm McKinsey had been working with the Federal Board of Revenue (FBR) for the past four weeks.

“The purpose of that is end-to-end digitalisation […] and with automation there will be less human interaction. I’m not saying it will end human interaction, only that it will lessen it […] there will be transparency and less corruption,” he said.

The minister claimed that “harassment and frivolous notices” were the reason why individuals were reluctant to file taxes, and as he had worked for six years in the private sector, he was “also on the receiving end.”
In addition, the minister declared that airport outsourcing was coming to an end and that the airport in Karachi would be turned over to the private sector by July or August of this year.

The minister stated that departments or ministries that had been transferred to the provinces would be closed by the federal government and that this action was anticipated to save costs and boost productivity.
He claimed that the Pakistan Public Works Department would be closed as announced by Prime Minister Shehbaz Sharif, which would lessen the budgetary load.