Sources in the Ministry of Finance said on Tuesday that due to spending on military operations in North-West Frontier Province (NWFP) and the cost implicit given the numbers of internally displaced persons (IDPs) first in Swat and now in South Waziristan, Pakistan missed the fiscal deficit target of 1.3 percent of Gross Domestic Product (GDP) during the first quarter of current financial year 2009-10.
Pakistan also missed revised revenue collection target of Rs 270 billion set for first quarter of current financial year 2009-10. Against the set target of Rs 270 billion, the FBR collected Rs 262 billion in the first quarter of current fiscal year. Pakistan authorities are expected to get a further reprieve from the IMF by pointing out that security issues and the consequent slowdown in economic activity during the period under review were the main factors for failure to meet structural benchmarks identified in the two Letters of Intent submitted by the government of Pakistan to the IMF.
During the first quarter, overall imports, including dutiable imports, declined. The import value of major revenue spinners like vehicles has also shown major decline during this period. The shortfall of Rs 8 billion in the first quarter has been carried forward into the second quarter. And the target for second quarter has been set at Rs 325 billion ie 23.5 percent of total collection.
When asked about the structural benchmark criteria set for the Federal Board of Revenue (FBR), sources in FBR said that the draft law on harmonisation of all taxes has been finalised and duly vetted by the Law Ministry. Prime Minister Yousuf Raza Gilani has also accorded approval to the said draft. The draft legislation would be presented before the Parliament and it would be done in due course and IMF staff is well aware of these developments. In case the law on harmonisation of taxes is promulgated through a Presidential Ordinance, it would also achieve the same objective.
Sources said that the Sales Tax Act, Income Tax Ordinance and Federal Excise Act would be amended through the harmonisation of laws. At the level of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs), collectors as well as commissioners have been appointed but are not yet able to exercise powers of sales tax, federal excise and income tax.
Pakistan had agreed with the IMF to submit to Parliament by end-September 2009 legislative amendments to harmonise the sales tax, income tax, and the federal excise tax laws with a view to facilitate the work of the functionally structured tax administration (structural benchmark).
This harmonisation will also include the elimination of the option for retailers with a turnover of over Rs 10 million to choose the presumptive tax regime. These measures will be taken prior to the Fund's Board consideration of the third review. However, reduction in tax exemptions will be achieved only with the introduction of the new broad-based VAT regime, which is scheduled to become effective on July 1, 2010.
Sources said that the new occupational group ie Inland Revenue Services (IRS) has been created under the Establishment Division rules of business to integrate domestic taxes. The Inland Revenue Services was created on September 12, 2009 against the agreed deadline of September 15. Under the Office Memorandum of the Establishment Division, the IRS has been created for re-organisation of the FBR. Over 900 officials have opted for IRS.

Copyright Business Recorder, 2009