ISLAMABAD: Prime Minister Shehbaz Sharif said on Thursday the elite classes of Pakistan needed to pay their share of taxes, a day after the government announced its national budget and set a challenging tax revenue target of 13 trillion rupees ($46.66 billion) for the year starting July 1, a near 40 percent jump from the current year. 

Pakistan has to find ways to increase its revenues to reduce its fiscal deficit as part of reforms being discussed with the IMF, with whom Islamabad is in talks for a bailout of up to $8 billion. The IMF wants Islamabad to carry out gradual fiscal consolidation, broaden its existing tax base, and improve tax administration and debt sustainability while protecting the vulnerable.

“During the budget preparation, I made it clear that the elite must pay taxes,” Sharif was quoted as saying in a statement by the PM Office after a meeting on tax reforms, digitization of the economy and measures to increase revenue. 

“We will eliminate tax evaders and those who assist them.”

Calling the national tax watchdog, the Federal Board of Revenue (FBR), the “most pivotal wheel” of the national economy, Sharif said the incumbent government would provide all resources for the uplift and digitalization of FBR’s human resources.

The top priority was to lower the tax rate while increasing the number of taxpayers, Sharif added, reiterating his government’s resolve to impose minimal taxes on the poor and middle class.

“We are prioritizing the complete digitization of the tax system and enhancing the capacity of the workforce,” Sharif said. “We are taking steps to bring eligible taxpayers into the tax net as soon as possible.”

The rise in the tax target in the national budget is made up of a 48 percent increase in direct taxes and 35 percent hike in indirect taxes over revised estimates of the current year. Non-tax revenue, including petroleum levies, is seen increasing by a whopping 64 percent while sales tax would increase to 18 percent on textile and leather products as well as mobile phones. A hike in the tax on capital gains from real estate has also been announced. 

Key objectives for the upcoming fiscal year include bringing the public debt-to-GDP ratio to sustainable levels and prioritizing improvements in Pakistan’s balance of payments position, the government’s budget document shows.

Pakistan has projected a sharp drop in its fiscal deficit for the new financial year to 5.9 percent of GDP, from an upwardly revised estimate of 7.4 percent for the current year. 

On Monday, the central bank warned of possible inflationary effects from the budget, saying limited progress in structural reforms to broaden the tax base meant increased revenue must come from hiking taxes.

The bank, in a bid to boost growth, cut interest rates for the first time in four years on Monday, slashing them by 150 basis points, in the face of a sharp decline in inflation from a high of 38 percent last year to 11.8 percent in May.

GDP would expand 2.4 percent in the current year, missing the budgeted target of 3.5 percent, the government said, despite revenues rising 30 percent on the year, and the fiscal and current account deficits being under control.

The upcoming year’s growth target has been set at 3.6 percent and inflation projected at 12 percent, Aurangzeb said.

With inputs from Reuters