Finance Minister Muhammad Aurangzeb on Thursday expressed his aim to increase the tax-to-GDP ratio to 13 per cent in the next three years, from the current one of more than 9pc.
The minister’s comments came as he addressed the post-budget press conference a day after unveiling an expansionary budget proposal of Rs18.8776 trillion for FY25.
In his first budget, the finance minister on Wednesday proposed raising both direct and indirect taxes to a historic high, showing that a loan deal with the International Monetary Fund (IMF) to bail out the economy outweighs the relief direly needed by the inflation-broken masses, whose incomes have hit rock-bottom in recent years.
While responding to a question about whether the salary slab will be revised or remain the same, the minister said that taxes for the exempted class and those in the top slab category have been maintained.
“If you compare it with the non-salaries class, which includes the professional community, we have increased it to 45%,” he said, adding that there are some changes in tax slabs and there is no doubt about it.
However, he maintained that tax base will be broadened with tax to Gross Domestic Product (GDP) to be taken to 13%.
The minister maintained that the 10% tax-to-GDP ratio is unsustainable and in the next 2-3 years they have to take it to 13%.
He further stated that the concept of non-filers is only in Pakistan and no other country in the world; therefore, the tax rate has been increased for non-filers.
Aurangzeb insisted that higher taxes would be imposed on those with higher incomes, adding that no one should object to it.
“The undocumented economy is being digitized on an end-to-end basis,” he said, further stating the development will reduce human intervention and bribery.
“Business transaction tax is being increased for non-filers,” he said.
When commenting on taxing retailers, the minister said the government began their registration on a voluntary basis in April and invited them to register themselves through an application, which was only done by 75 people.
“In May, the FBR’s workforce mobilised and registered 31,000 retailers,” he said, adding that this campaign will continue as the collection of tax will begin from July.
He insisted that the tax on retailers and wholesalers should have been imposed in 2022. “We protected [them] as much as we could… We have no choice but to bring this sector into the tax net.”
Aurangzeb said digitisation of the economy is a priority for the government, as it will help reduce corruption and increase transparency.
The finance minister acknowledged the significance of freelance professionals in Pakistan, as it has the third largest freelancer population in the world.
With regards to the government’s seriousness towards efforts for the information technology (IT) sector, the minister said: “A huge amount has been allocated for the IT sector. Infrastructure in the IT sector can be improved with the allocated money.”
It should be noted that the new raise in taxes would fetch additional revenues of Rs3.8 trillion in line with the IMF demands.
The budget, which many believe is designed to meet IMF requirements for securing another $6 to $8 billion loan under the medium-term Extended Fund Facility (EFF), marks a 25% increase over the outgoing fiscal year’s outlay.
Despite its expansionary nature, the government has proposed historically-high additional taxes through various adjustments and new levies, potentially increasing the burden on already strained taxpayers.
The budget includes raised taxes on salaried classes and the removal of certain tax exemptions.
It also aims to increase spending but may hinder efforts to control inflation.
Additionally, higher taxes could exacerbate the price situation. The budget does not mention any austerity measures in government expenditures but rather focuses on increased spending.
