PHOTO: REUTERS
Just one month after it passed the federal budget for fiscal year 2016, the government has levied new taxes using administrative measures in a bid to shore up revenue collection after the tax agencies fell short of their first month target. The new taxes include a 36.5% sales tax on electricity generated by diesel-fired power plants and an increase in sales taxes on almost all petroleum products.
The need for such extraordinary measures arose after the Federal Board of Revenue fell short of its revenue collection target by Rs8 billion. The FBR was supposed to have collected Rs157 billion in July, and was only able to collect Rs143 billion.
The government has set itself an ambitious Rs3,104 billion tax collection target for the fiscal year that ends June 30, 2016 and is already off to a rocky start. In the fiscal 2016 budget, the government had imposed Rs238 billion in new taxes and is still unable to meet its targets despite that hefty rise in taxes. As a result, in addition to those new taxes, the government increased the taxes on fuel prices and the sales tax on electricity generated using already expensive diesel as fuel.
FBR chairman Tariq Bajwa said the need to re-introduce the tax on diesel-generated electricity was to address the issue of sales tax adjustments claimed by independent power producers.
Meanwhile, the government passed on only one-third of the effect of lower global oil prices by raising taxes on virtually all fuels. Sales tax rates on high speed diesel went up from 29% to 36.5%, on light diesel oil and petrol from 17% to 20%. Even the tax on kerosene oil, used by the very poorest of Pakistanis, went up from 17% to 20%.
The government had previously promised that it would end the practice of introducing taxes through administrative measures and bring all tax changes through Parliament. However, it left itself a giant loophole: taxes can be raised administratively if the government needs to fulfil obligations to multilateral lenders, such as the International Monetary Fund.
Even the administrative measures to raise taxes have to at least go through the Economic Coordination Committee of the Cabinet. However, the new taxes were passed without any ECC meeting. The revenue impact of these measures was not immediately clear.
The new taxes were introduced as part of a contingency plan that the government agreed to with the IMF. The government has promised the IMF that it will keep the budget deficit to 4.3% of the total size of the economy, or Rs1,318 billion.
FBR performance
As with last year, the FBR is off to a poor start, largely because it spent all of June ruining July and August’s revenue collection, something it does every year. Whenever the FBR is falling short of its revenue collection target in the last month of the fiscal year, the government asks large companies to pay advance taxes. The drawback of this approach is that it reduces the revenue collection in July and August, which again causes the FBR to fall behind on its revenue collection the following June.
The FBR had claimed collecting Rs107 billion alone on the last day of previous fiscal year, which was unprecedented.
In June 2015, the FBR had paid only Rs501 million refunds. However, despite blocking refunds, taking advances and introducing five mini-budgets, the FBR had missed the fiscal 2015’s target by Rs229 billion.
The Rs149 billion collection is only 4.8 per cent of the annual target of Rs3,104 billion, almost the same ratio as July 2014 when the FBR had claimed that it collected Rs133 billion or 4.7% of the annual target, although State Bank of Pakistan disputed the FBR’s claim, saying its true collection was only Rs124 billion during July 2014.
The FBR needs a growth rate of 20% to achieve the Rs3.104 billion target but July collection was only 11% higher than the same month last year.
Published in The Express Tribune, August 1st, 2015.
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