Setting sights a little too high

Shahbaz Rana May 14, 2010

ISLAMABAD: The Rs1,700 billion tax revenue target for the next financial year has been declared overambitious by people in the Ministry of Finance, the Revenue Advisory Council and the former chairman of the Federal Board of Revenue (FBR).

“The roadmap to achieve the target would be discussed with the International Monetary Fund (IMF) in Doha between May 17 to 21,” one of the officials said. “If the IMF does not agree, the target may be revised.” Israr Rauf, official spokesperson of the FBR and Member Direct Taxes, confirmed that the Rs1,700 billion tax target has been finalised. Efforts would be made to collect 40 per cent of the target through direct taxes, he added.

The Revenue Advisory Council (RAC) has recommended that the government fix the target at Rs1,608 billion instead, citing sluggish economic growth and power outages. A senior member of the Council said that it would not recommend the government to go for an unrealistic target. For the coming financial year, the inflation projection is of nine per cent and economic growth projection is of four per cent. Thus a 13 per cent nominal economic growth would add almost Rs175 billion to this year’s collection.

The Revenue Advisory Council has also estimated that gross revenue from value-added tax would be slightly over Rs110 billion while the transitional cost of the new consumption tax would be Rs 60 billion. This would leave the authorities with a net Rs50 billion. For the remaining amount the FBR would have to take additional revenue measures at a time when the country is witnessing sluggish economic growth under the IMF umbrella. “In the given circumstance, [this tax] target is over ambitious.

The government should try to keep the industries running instead of putting additional burden on them,” said Abdullah Yusuf, former FBR chairman. He added, however, that the final opinion could only be given after learning about the roadmap to achieve the target. Yusuf said that in order to collect Rs1,700 billion “the FBR needs 26 per cent growth in revenue, which seems impossible”. He said that the position of the Karachi Stock Exchange was not buoyant.

Therefore, the government would not be able to get significant revenue despite levying capital gains tax on short-term transactions. The last time the FBR achieved its tax collection target was in 2007-08. Since then it has been falling short of the annual targets. For the financial year 2008-09 the target was Rs1,360 billion and the collection was Rs1,157 billion. For the current fiscal year the target is Rs1,380 billion but the RAC estimates that the FBR would barely manage to collect Rs1,330 billion.

An official of the Ministry of Finance said that the FBR’s internal working showed that it would not be able to collect more than Rs 1,660 billion despite more than Rs30 billion recovered from taxpayers’ audit. “If there is a shortfall, the government would cut the development expenditure,” said a ministry of finance official. The official added that the government would try to convince the IMF to allow Islamabad 5.1 per cent budget deficit target. The IMF has been asking Pakistan to restrict the gap between income and expenditure to 3.9 per cent of the total size of the economy.

“The upper limit of Doha deficit bargaining, which the government wants, is 5.1 per cent, and the lower limit, the IMF demand, is 3.9 per cent.” He said the federal government was expecting that the IMF would allow Islamabad to have 4.5 per cent or around Rs 750 billion budget deficit target for the next fiscal year. It is not for the first time that the government has under-estimated its deficit target. For the ongoing financial year, the government has estimated expenditure at Rs2,877 billion but the latest statistics of the finance ministry and the IMF show that the expenditure would exceed to Rs2,913 billion.

Published in the Express Tribune, May 15th, 2010.

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