The Federal Board of Revenue (FBR) has drafted a mini-budget proposal that includes an increase in withholding tax (WHT) rates across 31 different financial transactions if Pakistan’s revenue shortfall continues into September 2024. The proposal outlines a potential 1% increase in WHT rates as a measure to boost revenue collection for the fiscal year 2024-25.
According to sources within the FBR, the proposal will be implemented if the revenue shortfall persists by the end of September 2024. The withholding tax increase would be applied to various sectors, targeting high-volume financial transactions that have significant revenue-generating potential.
At present, 31 types of withholding taxes are applied to different financial transactions, including banking, real estate, and business payments. The FBR’s proposal aims to increase the withholding tax rates by 1% to meet revenue targets, particularly as Pakistan faces ongoing challenges in meeting its fiscal goals. The mini-budget proposal would come into effect via a supplementary finance bill if tax collection targets are not met by the end of the first fiscal quarter (July-September 2024).
The FBR’s decision to prepare this proposal stems from a substantial shortfall in tax collection during the first two months of FY 2024-25. As of August, the FBR had collected Rs. 1,456 billion, falling short of the assigned target of Rs. 1,554 billion, resulting in a revenue gap of Rs. 98 billion.
While the FBR has not proposed an increase in the standard rate of sales tax, the withholding tax rate hikes are being considered to offset the shortfall. FBR officials stated that the 1% withholding tax increase could generate significant additional revenue, helping the government bridge the gap and meet its fiscal targets.
“The withholding tax rates are designed to capture a wide range of transactions, ensuring that the revenue impact is spread across multiple sectors,” explained an FBR official. “However, the final decision to implement this proposal will depend on tax collection results at the end of September.”
The FBR’s proposed measures come as the government continues to navigate economic challenges, including inflationary pressures and external debt obligations. With the potential introduction of a mini-budget, the FBR is taking proactive steps to ensure that Pakistan’s revenue stream remains robust, despite fiscal difficulties.
The withholding tax increases, if implemented, are expected to raise substantial funds and stabilize the government’s revenue base. However, the move may also face pushback from businesses and industries that argue it could further burden the private sector during a period of economic recovery.
The coming weeks will be crucial as the FBR works to meet its tax collection goals and determine whether the mini-budget proposal will be enacted.