The Federal Board of Revenue (FBR) has said it has so far suffered a revenue shortfall of Rs27 billion because of various tax relief measures announced by the government in the budget for fiscal year 2011-12.
It has further pointed out that 50 per cent of imports into the country have become exempted from customs duty, leading to a hefty decline in revenue collection.
According to documents, the FBR says the government reduced tax rate and abolished some taxes in the budget, which caused the revenue shortfall. These included a one per cent cut in general sales tax to 16 per cent and abolition of special excise duty and flood surcharge. In addition to these, the government rejected an FBR proposal for new tax measures to generate an additional Rs70 to Rs80 billion in revenues in the current fiscal year.
Documents further say adverse factors in the domestic and international markets like slowdown in the country’s economy, stagflation and a decline in global oil prices have also affected revenue collection this year.
According to a senior FBR official, stagflation is more dangerous than inflation. In times of inflation, though prices of goods and commodities rise but at the same time economy also progresses and job opportunities emerge. However, in case of stagflation not only prices rise but economy also comes to a standstill and employment situation gets worse.
In the revenue generation strategy paper for 2011-12, the FBR is of the view that in order to increase tax collection its proposals for new revenue measures can again be reviewed. Besides, an increase in income tax rate can also be considered, particularly for those sectors which have high incomes. In the same way, FBR says, withholding tax regime can be reviewed in a bid to improve tax yield.
According to the paper, the government can also consider proposals for withdrawing sales tax exemption for agriculture, food, health and educational sectors. It suggests that the government can also consider ending customs duty relief on import of many items. The FBR also suggests a review of reduced sales tax on sugar and increasing excise duty on cement.
FBR has already given a briefing on the revenue generation strategy to the finance ministry and a final decision will be taken by the ministry.
Published in The Express Tribune, September 8th, 2011.
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So are we going to see a mid-course correction? Were the revenue losses not properly quantified at the time of the budget?