ISLAMABAD: The Federal Board of Revenue (FBR) has provisionally collected Rs2.07 trillion in taxes in first seven months of the current fiscal year, falling short of its target by Rs187 billion despite increasing sales tax on petroleum products to 17% last month.
From July through January of fiscal year 2018-19, the FBR provisionally received Rs2.064 trillion in taxes, according to officials. The net increase compared to the last fiscal year was only Rs69 billion or 3.5%.
The 3.5% growth was far below the nominal economic growth of over 11%, indicating huge revenue slippages.
The FBR was required to collect Rs2.251 trillion in seven months and fell short of its goal by nearly Rs187 billion. It expects addition of a few more billions to January’s collection after taking into account book adjustments.
In January alone, the FBR’s provisional collection missed the target by Rs32 billion, according to sources in the FBR. The collection stood at Rs270 billion, which was down by Rs4 billion or 1.5% compared to January 2018.
The monthly target was Rs302 billion. The FBR hopes to hit last January’s level once book adjustments are made.
In January 2018, the FBR collected Rs273.5 billion, according to central bank statistics.
The shortfall for the July-January period was equal to 0.5% of gross domestic product (GDP). This has made it impossible to achieve the revised budget deficit target of 5.6% of GDP or Rs2.2 trillion.
The Pakistan Tehreek-e-Insaf (PTI) government had planned to impose nearly Rs190 billion worth of additional taxes in its second mini-budget, but dropped the idea due to opposition from within the party and delay in finalisation of a bailout programme with the International Monetary Fund (IMF).
Moody’s credit rating agency said on Thursday Pakistan did not focus on expenditure controls and revenue enhancement measures in the second supplementary budget. It projected that the budget deficit may now hit 6% of GDP or Rs2.3 trillion.
The State Bank of Pakistan governor also stated on Thursday that the fiscal deficit remained elevated, which was defeating the purpose of economic stabilisation.
Last month, the government hiked sales tax on petroleum products to the standard 17%, aimed at supporting revenue collection. Still, the FBR could not reach close to its monthly target.
The first-half collection was equal to only 47% of the annual target of Rs4.4 trillion. The provisional collection fell short of the desired growth of 14.5% needed to hit the annual target.
The Ministry of Finance’s internal assessment revealed that without additional measures, the FBR may not even cross the Rs4.1-trillion mark, according to sources in the ministry. They claimed that the finance minister was unhappy with the FBR’s performance.
In the last round of talks, the IMF demanded that Pakistan revise the FBR’s annual tax collection target to Rs4.7 trillion.
It seems that Prime Minister Imran Khan and Finance Minister Asad Umar are losing hope of reforming the FBR as recent administrative changes could not help enhance revenue collection.
The federal cabinet has already decided to separate policymaking from the FBR’s operations but the decision remains unimplemented.
There is shortfall in tax collection against almost every notable head. FBR authorities insist this is a sign of slowing economic activities and shrinking purchasing power of people due to growing inflationary pressures.
Direct tax collection was almost flat in first seven months of FY19. Sales tax collection at the import stage plunged due to the government’s import squeezing policy. At the domestic stage, the sales tax collection rose less than 2%.
The Rs2.064-trillion collection is inclusive of the blocked refunds of taxpayers. Total outstanding refunds have increased to over Rs400 billion including legacy refunds of nearly Rs350 billion from the previous PML-N’s government tenure.
The current government has now decided to clear Rs120 billion worth of sales tax refunds including Rs80 billion through three-year promissory notes.
Published in The Express Tribune, February 1st, 2019.