Strategic retreat: Tax collection target revised downwards

Government finally accepts that original target is unachievable, but insists it has not ‘failed’.

ISLAMABAD:

The government has revised the tax target to Rs1.929 trillion, Rs23 billion less than budgetary projections after Federal Board of Revenue failed to hit monthly goalposts for consecutive two months.

The target has been slashed on the pretext that Sindh Revenue Board’s efforts of collecting taxes on services has dented FBR’s revenue collection. Sources said the FBR will still notionally present the SRB collection as its own collection to show that it was chasing the original target.

The revision will not only widen this year’s gap between federal income and expenses but will also affect next year’s projected target of Rs2.34 trillion. The government will have to take either additional revenue measures to cover this gap for the next year or bring down the target. The decision was taken in a meeting of Tax Reforms Coordination Group, headed by Finance Minister Dr Abdul Hafeez Shaikh, said an official after the meeting. The Minister showed his “concerns about falling revenues” and asked the tax authorities to submit daily reports to him to monitor the situation, said the sources.

From July through April, the FBR bagged Rs1.424 trillion in taxes, according to the FBR. The minister has asked the authorities to collect Rs505 billion in remaining two months, said the official.

The FBR is run on ad-hoc basis. Since retirement of Salman Siddique as chairman FBR in February, the government has given the additional charge of chairman FBR to Mumtaz Haider Rizvi, who is member Customs FBR. Economic experts had been calling Rs1.952 trillion tax target “over ambitious”, and predicted that the government would miss it by a wide margin.

Though the target has been revised, the authorities have come up with a novel justification instead of admitting the failure. The FBR is adding Rs23 billion collected by Sindh Revenue Board into its collection arguing that when Rs1.95 trillion target was fixed these services were penned down to be collected by FBR.

“The Sindh Revenue Board’s Rs23 billion have been treated as part of FBR’s collection”, said Riffat Shaheen Qazi, spokesperson for the FBR.

However, argument does not seem carrying logic, as the SRB was constituted before start of the fiscal year. Moreover, when tax figure fudging scandal surfaced the finance minister had formed a committee of experts to determine whether the scandal have any implications for this year’s revenue target. At that time the SRB was fully operational.

Moreover, the FBR’s collection becomes part of divisible pool that is divided between the federation and provinces. The SRB’s collection is part of Sindh’s revenues and the other provinces cannot claim this. Under the constitution, tax on services is a provincial subject. The other three provinces have so far authorised FBR to collect taxes on services on their behalf.

In April, the FBR collected Rs158 billion in taxes, remaining short of the target by Rs30 billion, for the consecutive second month. In March FBR had pooled Rs156 billion, Rs32 billion short of target. The authorities had rolled over the shortfall to April’s target but failed to achieve the target.

Overall, the April’s collection was Rs28.3 billion or 21.8 per cent higher than last April’s collection. The ten months collection, Rs1.424 trillion, was Rs274 billion or 23.8 per cent higher than the collection in the comparative period of last financial year.

The FBR’s overall performance is not so bad as we are maintaining over 23 per cent growth but yet the authorities are not able to achieve the “desired results”, said a member of the FBR.

Published in The Express Tribune, May 2^nd, 2012.