Dent in revenues: Govt admits to revising tax target downwards

Tax collection target now Rs2.345 trillion, development budget sliced as well.

ISLAMABAD:

After months of public denial, the federal government on Thursday admitted that the Rs2.475 trillion tax target has been revised downward, which will have direct implications for the development budget that has also been sliced by one-fifth.

Due to lower tax collection in the last fiscal year, this year’s tax collection target has been revised to Rs2.345 trillion, Rs130 billion less than the target set by the Parliament, said Finance Minister Ishaq Dar while talking to media. Dar spoke after attending a ceremony arranged to launch the £10 million Financial Inclusion Challenge Fund to support the rural agriculture sector.

Dar said this year’s budget had been prepared on the assumption that the Federal Board of Revenue would collect Rs2.05 trillion in tax revenue in fiscal year 2012-13. In the end, the FBR collected only Rs1.946 trillion that eroded the base, which was now affecting revenue collection in the current fiscal year, he added.

Dar said so far the FBR had managed to attain a 17% growth rate in revenue collection over the previous year and expectations were that the rate will increase to the 20% necessary to achieve the revised target of Rs2.345 trillion, he added.

The first report of the International Monetary Fund (IMF) that went public in September last year had showed that the FBR’s revenue collection target was Rs2.345 trillion. However, at that time the federal government dispelled it saying it was merely the IMF’s projection.

The reduction in tax collection target will dent the government’s efforts to increase Tax-to-Gross Domestic Product ratio to 9.5% by the end of the current fiscal year. The reduced revenues will also adversely hit the provinces’ shares in federal taxes, which will affect their annual development plans.

But Dar insisted that despite the reduction in tax target, the provinces will still get Rs219 billion more than what they got the previous year as their share in federal taxes.

Dar said that due to the reduction in tax collection this year’s development budget will be Rs425 billion. The Parliament had approved Rs540 billion for the development budget for the current fiscal year. He said the Rs115 billion ‘Block’ allocation had been linked with the FBR’s ability to achieve Rs2.475 trillion tax target.

It was not yet clear whether the government will stick to the budget deficit ceiling of 5.8% of the GDP or try to relax it. Breaching the budget deficit ceiling may adversely affect the $6.7 billion IMF programme.

US assistance

While responding to a question on reduction in United States (US) civilian assistance to Pakistan, Dar said Pakistan will review the situation. Dar said his government was more concerned about timely disbursements of the Coalition Support Fund (CSF) than receiving aid under Kerry Lugar Berman Act.

President Obama has sought approval for $1 billion from Congress for both civil and military assistance to Pakistan for the next fiscal year. This has given rise to speculations that the US administration has cut the annual $1.5 billion civilian assistance programme.

Pakistan has sent CSF bills from October to December 2013 to the US and total outstanding dues on account of CSF have increased to $1.6 billion, said Dar, while urging the US to disburse the money timely so that Islamabad could cushion its depleting foreign currency reserves.

Eurobond

Dar confirmed reports that Pakistan will float $500 million worth of Euro Bonds early next month. He said the transaction will be completed by the mid of next month and hoped that the bond will get affirmative response from the international investors.

Dar said Pakistan’s economy was moving in the right direction and the country will achieve an economic growth rate of 4.4% as against the IMF projection of 3.1%. He urged commercial banks to increase credit lines to the agriculture sector that contributes over one-fifth in GDP but gets only 7% of the total banking sector loans.

He said the government was focusing on regional integration and creating energy corridors aimed at boosting prospects for growth.

Published in The Express Tribune, March 7^th, 2014.

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