‘Unrealistic tax targets’ followed by additional levies

Parliamentary panel questions govt’s ambitious attempt to collect Rs3.104t in FY16


Shahbaz Rana November 11, 2015
CREATIVE COMMONS

ISLAMABAD: A parliamentary panel on Tuesday questioned the government’s policy of setting unrealistic tax targets, which has now resulted in authorities being forced to implement additional levies worth Rs40 billion, denying consumers the benefit of reduced oil prices.

Senate Standing Committee on Finance and Revenue raised the issue of setting unrealistic budgetary targets and defended the Federal Board of Revenue (FBR) that has lately been abandoned by the Finance Ministry in the face of criticism.

“The Ministry of Finance has put internal pressure on the FBR to achieve certain targets, which it knew from the beginning of the fiscal year to be unachievable,” said PPP Senator and Standing Committee Chairman Saleem Mandviwalla.

For the current fiscal year, the International Monetary Fund (IMF) and the Finance Ministry have set Rs3.104 trillion as the tax collection target despite the FBR’s reluctance.

FBR Chairman Tariq Bajwa has informed the Finance Ministry that his department cannot collect more than Rs3 trillion. As a result of setting the unrealistic target, the FBR faced a shortfall of Rs40 billion against the July-September target of Rs640 billion.



The IMF has now set a condition of slapping roughly Rs40 billion additional taxes, if Pakistan is keen on getting the tenth loan tranche of $502 million by December 15.

Finance Minister Ishaq Dar said on Monday that his government stood ready to impose additional taxes on luxury consumer items.

The standing committee objected over the government’s policy of taxing consumer goods, particularly food items like yogurt, powdered milk and rejected the FBR’s position that the said items were consumed by high-end consumers.

“There were no shortfalls in income tax collection that stood at Rs239.7 billion in the first quarter,” said Tariq Bajwa, while briefing the standing committee about the status of revenue collection. “Customs duties collection surpassed the target and stood at Rs79.6 billion in the first quarter,” he added.

However, he admitted that collection against federal excise duties and sales tax fell significantly short of their set targets. Against the target of Rs294 billion, the sales tax collection amounted to Rs253.4 billion, falling short by Rs40.6 billion.

Similarly, federal excise duties collection stood at Rs27.5 billion against the target of Rs38 billion, he added.

Bajwa said sales tax collection was hit significantly by a decline in imports, as overall imports declined by 12.5% during the July-September period. “Crude oil imports contracted by 44.4% while oil seeds imports also reduced 50.6% in terms of dollars.

“Reduction in crude oil imports affected the tax collection negatively by Rs7.6 billion. A shortfall of Rs8.6 billion in tax collection had to be sustained due to low prices of edible oil and another Rs3 billion on account of seed oil imports,” he added.

Despite the explanation, the huge shortfall in tax revenues due to fluctuations in commodity prices reflects the FBR’s faulty working as it remained unable to work out its precise revenue projections.

“The annual tax collection target is worked out on the basis of three parameters; policy measures, nominal Gross Domestic Product (GDP) growth and administrative measures,” said Bajwa, adding that the nominal GDP growth was not in his control and remained below projections.

The government has projected 11% nominal GDP growth that includes 5.5% economic growth rate and 6% growth in inflation. However, nominal GDP is expected to remain around 8.5%.

However, he refused to clear all outstanding tax refunds in a single year, saying it would adversely affect revenue collection. “Either the government has to take additional revenue measures or issue bonds to clear the refunds,” he added.

Published in The Express Tribune, November 11th, 2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

 

ISLAMABAD

 

COMMENTS

Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ