FBR considers more taxes to prop up faltering economy

Says country facing fiscal emergency, revenue collection target increased to Rs1.63 trillion.

ISLAMABAD: As the country continues to slide deeper into economic crisis, top economic managers are contemplating levying more taxes to bridge a burgeoning gap between income and spending, said a top official of the tax machinery.

“The country is in fiscal emergency-like situation…and the government has decided to raise the revenue collection target to Rs1.63 trillion with some new tax measures,” said Member Inland Revenue Service of the Federal Board of Revenue, Khawar Khursheed Butt, at a press conference on Friday.

In response to a question, the official said the Federal Board of Revenue (FBR) and the finance ministry were discussing various tax proposals but nothing can be said with certainty yet.

Pakistan Muslim League-Nawaz, the main opposition party, has already refused to extend support for new tax measures without full implementation of its 10-point agenda, focusing mainly on governance issues.

Butt said the government was also exploring other avenues, including monitoring of withholding taxes and recovery of arrears, to meet the target of Rs1.63 trillion. “In fiscal emergency-like situation….all boils down to revenue measures, as expenditures cannot be cut beyond a point due to ongoing war on terrorism and floods (related) reconstruction expenses,” he said.

According to the finance ministry’s latest projection, without taking corrective measures the budget deficit by the end of June could slip to eight per cent of the total size of economy or Rs1.37 trillion. Its plan to levy reformed general sales tax, flood surcharge at the rate of 10 per cent of payable tax and double the rate of special excise duty has met with opposition from all quarters.

The FBR official admitted that the tax reforms initiated in 2005 were lagging behind targets, thanks to disintegration in FBR and its allied programmes. “Despite spending over Rs6 billion on tax reforms, the key objective of automation could not be achieved,” said Butt.

He said if there were no solution to the problems then there was no need to spend millions of rupees in the name of tax reforms. The automation failure is becoming a major bottleneck in broadening the tax base, as there is a gap of one million between active taxpayers and National Tax Number holders, he said. In a country of 180 million, there are less than 3.5 million NTN holders.

He also acknowledged that FBR was also facing data authenticity problem, as there was a mismatch between the data collected by Pakistan Revenue Automation Limited - an FBR subsidiary, and through other programmes. Butt said FBR’s own data bank would be ready by September end.

IMF-Pakistan talks delayed

Talks between Pakistan and the International Monetary Fund (IMF) have been delayed for three to four days. The government will share tax measures with the Fund in the upcoming talks, which were earlier scheduled to begin on February 22. Both the parties will soon finalise the date and venue of talks, said a finance ministry official.

IMF wants to meet Pakistani authorities in Dubai but the finance ministry prefers Islamabad as venue for talks. The suspension of the $11.3 billion IMF programme has resulted in a delay in the release of the sixth loan tranche of $1.7 billion.

On the eve of federal budget for 2010-11, the government had set Rs1.667 trillion tax collection target which was later revised downwards to Rs1.603 trillion. Latest assessment of the finance ministry, FBR and IMF showed that without new tax measures FBR may not collect more than Rs1.575 trillion till June 30.

Till February 18, FBR collected around Rs800 billion in taxes and still has to collect Rs830 billion in four and a half months.

Published in The Express Tribune, February 19^th, 2011.