FBR blames govt for Rs117 billion revenue shortfall

Cites govt’s tax measures, fiasco on property front, weak exports as reasons for the plunge


Shahbaz Rana December 03, 2016
Leaders of business community and media persons can play a key role in success of mass awareness campaign, Aslam said. PHOTO: EXPRESS

ISLAMABAD: The Federal Board of Revenue (FBR) on Saturday blamed the government’s tax policies for a whopping Rs117-billion shortfall in revenue collection. However, Finance Minister Ishaq Dar did not agree on a downward revision in the annual collection target, at least for now.

The minister called the FBR’s top hierarchy in his office to review its progress after revenues plunged from July to November of the current fiscal year 2016-17. Against the target of Rs1.201 trillion, the authorities collected Rs1.084 trillion, according to the final collection figures.

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This has created a gap of Rs117 billion, equivalent to 0.4% of gross domestic product (GDP), creating problems for the finance ministry in managing its fiscal operations without resorting to more borrowings.

The growing revenue shortfall coupled with non-disbursement of the Coalition Support Fund may make it difficult for the ministry to achieve its current year’s budget deficit target of 3.8% of GDP.

The government’s tax policy measures should be blamed for the revenue shortfall, senior FBR officials told the top economic manager of the country.

They said the government’s decision to keep petroleum prices unchanged for the first five months of 2016-17, the fiasco on property front, weakened exports and low interest rates were key reasons for the shortfall in tax collection, said sources in the finance ministry.

FBR authorities argued that there were no major lapses on the operational side, the sources said.

The FBR saw only 2% growth in sales tax collection in the first five months. According to an analysis presented to the finance minister, the sales tax growth could have been about 13% had petroleum prices not remained at last year’s levels.

They FBR authorities were of the view that the annual revenue target of Rs3.621 trillion had been set by assuming that petroleum prices would remain constant. Last year, prices of petroleum products were higher by one-tenth. In addition, sales tax on high-speed diesel was 37% last year compared to 31% this year. Sales tax on motor spirit (petrol) was 21% last year compared with 14.5% from December this year.

However, the finance minister told the FBR authorities that petroleum prices would remain a political decision. The government increased prices of high-speed diesel and motor spirit from December 1.

On Wednesday, Dar said the impact of lower oil prices was Rs13 billion per month.

Contrary to official claims of an adverse impact on revenue collection, consumers have been paying up to 38% more on oil compared with prices prevailing in the international market to make up for the revenue shortfall.

On the income tax side, the FBR blamed low interest rates, lower output of big industries and low collection of withholding taxes on the sale and purchase of properties as reasons for the decline in collection.

Tax authorities said due to these reasons, the income tax collection showed only 4% growth. Had these factors remained constant, the growth in collection would have been at least 10%, said the sources.

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Sources said the FBR did not give a commitment that it would achieve the target of Rs3.621 trillion. It said taxmen would do their best but the achievement of target hinged on government’s policies.

The FBR’s argument suggests it was not ready to expand the base and move into areas where collection remains far below the potential. The discussion suggests that the FBR will keep relying on traditional revenue spinners - withholding tax, easy collection from petroleum products and big firms.

Sources said the FBR gave the hope that things might reverse in December. However, it would not be easy to achieve the Rs392-billion December target.

Published in The Express Tribune, December 4th, 2016.

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