Old habits die hard: Tax collection falls short despite govt measures

Steps to overhaul tax machinery still not yielding desired results.

ISLAMABAD:

Despite imposing an unprecedented Rs390 billion in new taxes through four mini budgets in a single fiscal year, the tax machinery has failed to achieve its revenue target and is making attempts to conceal its dismal performance that continued in February as well.

After posting negative growth in its revenue collection in January, the Federal Board of Revenue (FBR) has now missed its collection target for this month by a wide margin as well. According to provisional results, the FBR collected Rs182 billion till the end of  Friday evening, showing a growth of 11.5% over last February’s collection of Rs163.2 billion. The target for February was Rs210.2 billion.

The results show that the extraordinary measures government has taken to boost revenue without overhauling the tax machinery are not yielding the desired results. It has so far introduced four budgets in seven months.

If one believes in FBR, the provisional accumulative tax collection from July through February of this fiscal year amounted to Rs1.519 trillion, which was 11.7% or Rs159 billion higher than the collection made in the comparative period of the previous fiscal. By another account that the FBR has given to conceal negative growth in January, the eight-month accumulative collection should be Rs1.524 trillion.

The first eight month results show that the government will not be able to achieve the indicative tax target ceiling, set by the International Monetary Fund (IMF) for the July to March period.

The government has already twice revised the annual target downwards. As against the Rs2.810 trillion collection target that was approved by the parliament, the government first revised it down to Rs2.756 trillion and then to Rs2.691 trillion. Now, the FBR is saying that it will not be able to collect more than Rs2.660 trillion.

The government penalised consumers for inefficiencies of the tax machinery when it increased the general sales tax rate on all petroleum products, first from 17% to 22% and then 27%.Through another mini budget, it imposed additional regulatory duties on 314 items including 5% on import of furnace oil, which will make electricity generation expensive. It has also increased taxes on all types of imports by 50%. Withholding tax rates have also been enhanced.



These measures were taken over and above Rs234 billion taxes, which were introduced in June by the PML-N government while unveiling its second budget. Former finance minister Dr Hafiz Pasha has estimated that the total revenue impact of four budgets, including three mini ones, is Rs390 billion on an annualised basis.

Tax revenue controversy

The country’s tax collection data has become highly controversial after the Gross Domestic Product, inflation and poverty numbers. The tax collection figures reported by FBR and the State Bank of Pakistan to the Ministry of Finance do not match each other’s. The FBR’s revenue collection figures for the period of July-January period are Rs16 billion higher than reported by SBP to Finance Ministry.

The Ministry of Finance’s figures put the seven-month revenue collection figure at Rs1.327 trillion as against Rs1.343 trillion of the FBR, according to sources in the finance ministry.

The difference is mainly on account of January’s revenue collection figures. The FBR is claiming that revenue collection in January stood at Rs171 billion as against Rs166 billion in January last year. Another set of data that is also maintained by the FBR, the collection in January was Rs167 billion.

But the SBP is confirming only Rs155 billion in collection for January this year, which is Rs11 billion or 6.6% less than the collection in January last, said sources in the Ministry of Finance. This has made the eight-month collection figure irrelevant until the matter is resolved.

Published in The Express Tribune, February 28^th,  2015.

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