The Federal Board of Revenue has exceeded the first-half year target by Rs282 billion but lost the winning streak by missing the monthly goal for the first time this year due to poor domestic sales tax and income tax collection despite sluggish release of refunds.
The new challenge that FBR faced in December indicates the difficulties ahead after the annual current target of Rs5.829 trillion is set to go up to Rs6.179 trillion under a condition laid down by the International Monetary Fund.
Still, the FBR remains the main beneficiary of increased imports and nosediving rupee that significantly contributed to the collection of indirect taxes during first half of the current fiscal year (July-December).
Official statistics showed that while sales tax at the import stage increased 75%, the domestic sales tax collection fell 6%. The domestic sales tax collection dipped despite the fact that the nominal gross domestic product growth rate amounted to 16%.
According to the provisional data, the FBR collected net revenue of Rs2.915 trillion during July-December of current fiscal year (2021-22). It showed a growth of 32.5% compared to Rs2.2 trillion during the same period of previous year. Overall, the FBR gave Rs148 billion in refunds against Rs112 billion in the same period of the previous year.
The FBR has exceeded the first half year target by Rs282 billion. However, out of the excess collection, the contribution of income tax was just Rs5 billion and the rest came from sales tax at the import stage and customs duty, showed the provisional figures.
Monthly performance
The IMF’s skepticism about the consistency in FBR’s performance over the long term due to the possibility of slowdown in imports proved correct in December. The FBR, for the first time in this fiscal year, missed its monthly target by Rs22 billion.
Against the target of Rs617.4 billion, the tax authorities collected Rs595 billion in December, according to the provisional results. Against the monthly income tax target of Rs310 billion, the FBR pooled only Rs257 billion despite the fact that it did not release any refunds under the head of income tax during the month.
The Express Tribune had reported few days ago that the FBR’s collection with its own efforts has gone down by 41%, which is now being reflected in the monthly collection too.
Read FBR moves to prevent undue delay in tax disputes
However, against the sales tax target of Rs189 billion, the FBR provisionally pooled Rs223 billion in December alone, thanks to imports. The monthly domestic sales tax collection was higher by only Rs9 billion despite the fact that FBR gave less refunds in December.
The federal excise duty collection was also negative by Rs4 billion while the monthly custom duty target was achieved.
“We are growing at a rate that is more than the needed growth to knockdown the annual target on June 30,” said FBR Chairman Dr Mohammad Ashfaq while addressing a press conference on Friday.
Finance Minister Shaukat Tarin has already said that the FBR’s new target will be over Rs6.1 trillion -Rs6.179 trillion to be precise -under the IMF deal. But the six-month collection is based on the original target of Rs5.829 trillion.
The government has proposed mini budget of Rs375 billion, including Rs343 billion sales tax measures, which are highly inflationary.
The IMF is not a very happy place but it is a reality, said the FBR chairman while commenting on the background of the mini-budget. In the past, new taxes were always imposed but no government tried to withdraw the tax exemptions given to the affluent people, he added.
However, under the 2013-16 IMF programme, the then Pakistan Muslim League-Nawaz government too had withdrawn sales tax exemptions.
FBR chairman said that the government took ‘unpopular’ and ‘politically tough’ decisions to remove distortion in the taxation system and placed standard rate of 17%. These unpopular decisions for bringing sales tax at the standard rate will have political cost but the government preferred to take such bold decisions, FBR chairman said.
Half year performance
Overall, the FBR collected 65% or Rs1.9 trillion in indirect taxes - general sales tax, customs duty and federal excise duty, which were three main sources of indirect taxes. Similarly, Rs1.52 trillion or 52% of total collection was at the import stage.
The reliance on indirect taxes has increased inflationary pressure at a time when the country is witnessing rupee depreciation.
The FBR collected Rs1.02 trillion in income tax in the first six months of current fiscal year, up Rs194 billion or nearly one-fourth over the same period of previous year. Over Rs140 billion worth of income tax was collected at the import stage.
The income tax collection was higher by only Rs5 billion than the target set for the first half of the fiscal year. The share of income tax in total revenues stood at 35%, which placed increased burden on people who had lower payment capacity.
The Pakistan Tehreek-e-Insaf (PTI) election manifesto had promised to increase the share of direct taxes to 45% from 38%.
The FBR recorded 39% growth in sales tax collection in the July-December period due to heavy reliance on import taxes. It collected Rs1.27 trillion in sales tax, up by Rs355 billion. The total increase in sales tax collection was lower than the increase in sales tax at import stage, indicating that the domestic sales tax was less than the last year.
The FBR collected Rs397 billion in domestic sales tax compared with Rs407 billion last year. Contrary to that, sales tax collection at the import stage stood at Rs890 billion in the first six months of current fiscal year against Rs508 billion last year. There was an increase of Rs382 billion or 75% in sales tax collection at the import stage.
Federal excise duty collection amounted to Rs146 billion, which was Rs19 billion higher than the corresponding period of previous year.
Customs duty collection increased to Rs476 billion, higher by Rs142 billion or 43%. It was Rs61 billion more than the target.
Published in The Express Tribune, January 1st, 2022.
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