Revenue gap: Tax shortfall widens to over Rs142 billion

FBR misses tax target for first 6 months of fiscal year, blames govt for poor show

ISLAMABAD: The shortfall in tax collection has further widened to over Rs142 billion by the end of the first half of this fiscal year despite the government taking advances from banks and oil and gas producing companies for the period of at least next six months.

The Federal Board of Revenue (FBR) provisionally collected Rs1.452 trillion during July-December period of this fiscal year, falling short of the six-month target by Rs142 billion, according to officials of the tax machinery. However, they have blamed the government for the massive shortfall, highlighting a fundamental flaw in working out tax collection target for current fiscal year 2016-17.

The government set this year’s annual target at Rs3.621 trillion - as much as 16% higher than the final collection of the previous fiscal year. However, it did not exclude the impact of reduction in General Sales Tax (GST) rates on petroleum products and zero rating regime for the export-oriented five sectors, said the sources.

There was positive growth in income tax collection while the collection of sales tax remained slightly below the last year’s level.

In order to bridge the shortfall, the FBR took advance taxes worth over Rs30 billion in December alone from commercial banks and the oil and gas sector companies, said the sources. They added the Ministry of Finance also played a role in this regard. However, the FBR cannot be fully absolved of the responsibility to achieve the set targets, as it has also failed to broaden the income tax base that remains extremely narrow.

CREATIVE COMMONS

Flaw in explanation

If one accepts the argument of shortfall in tax revenues is due to reduction in tax rates, it would put a question mark on the rationale of having 22,000 strong FBR force that include 42 grade 21 officers and four grade 22 officers. The FBR employees get double salaries compared with standard pay packages of the civil servants.

One example of taking advances was that on December 30 when the FBR received Rs66 billion in a single day while on the same day of last year its collection was Rs28.7 billion.

In a testimony to the Senate Standing Committee on Finance, the FBR chairman admitted that the annual target of Rs3.621 trillion was high and unrealistic. He had said that the finance ministry had fixed the target without taking the FBR’s input.

For the current fiscal year, the parliament has approved Rs3.621 trillion annual target and the FBR was aiming at collecting 44% of it or Rs1.593 trillion in first half of this fiscal year.

The six-month collection was Rs67 billion or 4.8% more than Rs1.385 trillion that the FBR had collected during the first half of the previous year, according to the provisional results.

Due to heavy advances, the FBR’s collection in December increased to Rs380 billion as against last year’s collection of Rs335.9 billion. It posted 13% growth but fell short of the monthly target by Rs12 billion.

The FBR has informed the finance minister that its collection primarily dipped due to changes in sales tax rates on petroleum products, fertiliser and five-export oriented sectors besides reduction in interest rates.

The FBR collected Rs88.1 billion sales tax on five petroleum products during July-November period of this year. The collection was Rs38.3 billion less than the comparative year due to reduction in General Sales Tax rate. However, last year the government charged an abnormally high tax rates on petroleum products. Still, sales tax on high-speed diesel is higher than standard 17% rate.

According to the FBR’s estimates, it can potentially collect Rs575.8 billion from the petroleum products during the current fiscal year. At current sales tax rate, the FBR is anticipating at least Rs100 billion shortfalls, as it has already sustained Rs38 billion less collection in first five months. The FBR sources said that the sales tax collection from fertiliser sector dropped by 55% to Rs6.7 billion during first five months due to the government’s decision to lower GST rate from 17% to 5%. The government’s decision to grant zero-rating regime to five export oriented sectors also caused Rs6.2 billion dent to the FBR’s revenues during the first five months. However, this has provided much-needed relief to the textile sector, as the FBR was using their genuine refunds to inflate its revenues.

The FBR said that excluding these sectors, its collection from all other sectors was 13.3% higher during first five months of the fiscal year.

Similarly, its income tax collection from banking sector dipped by Rs15 billion during first five months.

Published in The Express Tribune, January 1^st, 2017.

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