Govt to impose flood levy on non-essential imports to meet tax collection targets

Govt can collect Rs35-40 billion by imposing 1% flood levy, says FBR official

By |

Image of the Federal Board of Revenues building in Islamabad. — Twitter/@FBRSpokesperson
Image of the Federal Board of Revenue's building in Islamabad. — Twitter/@FBRSpokesperson

  • Govt can collect Rs35-40bn by imposing 1% flood levy. 
  • FBR needs to collect Rs 4.782tr from Dec-Jun to achieve tax target.
  • IMF says import drop would make it tough for FBR to achieve target.

ISLAMABAD: The government is contemplating different options for imposing a 1-2% flood levy on non-essential imports to collect Rs35-70 billion tax revenues, a Federal Board of Revenue (FBR) official told The News.

In a bid to revive the International Monetary Fund (IMF) programme, the government is exploring different options to jack up tax revenues in the current fiscal year 2022-23. 

The purpose is to increase tax revenues and discourage imports simultaneously as the foreign exchange reserves held by the State Bank of Pakistan (SBP) dropped to $6.7 billion. A presidential ordinance is on the cards to shrink non-essential imported items.

A top FBR official told The News: “The FBR is working on a different proposal whereby the flood levy at a rate of 1 or 2 % will be proposed through the promulgation of an ordinance.” 

The government could fetch Rs30-35 billion in the second half (January-June) period of the current fiscal year 2022-23 if a 1% flood levy is imposed. While a 2% levy could help the government fetch Rs70 billion in the remaining financial year.

The official said that the government has not yet made a decision on the exact rate of the proposed flood levy. High officials of the FBR are working to finalise the rate of the flood levy on imports.

Earlier, the SBP used administrative measures for making it mandatory for banks to seek prior permission from the central bank for opening up LCs of over $100,000 keeping in view the ongoing dollar liquidity crunch.

The FBR has predicted an annual tax collection target of Rs7.47 trillion for the current fiscal year and collected Rs2.688 trillion in the first five months, and is eyeing to collect Rs0.965 trillion in December 2022 to achieve the desired target. 

The FBR has to collect Rs4.782 trillion in revenue from December to June to achieve its envisaged annual tax collection target. 

The IMF estimated that the import drop and the slowdown of economic growth would make it difficult for the FBR to achieve its desired target. However, the FBR high-ups say they might require staggering the target, but they are still hopeful that the fixed target of Rs7.47 trillion was achievable.

The collection from income tax stayed splendid as it brought earnings to the tune of about 40% against the set target of almost 20%. At the moment, the government and the FBR are analysing how much the performance of Inland Revenues including income tax, and sales tax, both at the import and domestic stages as well as federal excise duty, could compensate for the performance of customs duty in the wake of dwindling imports. 

After making the exact assessment, the rate of the proposed flood levy would be determined, however, the government is considering the range of 1 or 2 % levy on non-essential imported items.

There is no possibility of imposing a levy on food and medicines as they are essential items. However, an official claimed that the import of energy products including petroleum products, RLNG, furnace oil and coal might remain excluded from the proposed flood levy.