Government still likely to miss revenue target by Rs37b

Despite levying new taxes, government still dependent on FBR to bridge deficit.

ISLAMABAD:

Despite levying new taxes, the government is still dependent on the ‘administrative strength’ of the Federal Board of Revenue (FBR) to achieve the targeted increase of Rs53 billion in tax collection and may face a shortfall of as much as Rs37 billion.

In a joint press conference with Finance Minister Abdul Hafeez Shaikh, FBR Chairman Salman Siddique said that the government was relying on the FBR’s administrative measures to make up any potential shortfall in tax revenues over the next three months. The government has twice revised its revenue targets, which currently stand at Rs1.6 trillion.

“Despite the new taxes, the government cannot collect more than Rs1.563 trillion – a shortfall of Rs 37 billion,” said Siddique.

In order to make up for the shortfall, he said that the FBR will try to collect Rs15 billion out of tax collection on demand, and another Rs2 billion by raising provisional tax demands from the 700,000 identified tax evaders. The government also expects to collect at least Rs10 billion out of the Rs122 billion worth of tax evasion cases pending in courts.  “The chief justice of Pakistan has clubbed all the disputed cases [together] and decided to hear these case himself which will help with quick disposals,” said Siddique.

If the FBR is unable to meet its revenue targets, the budget deficit will slip to 5.5 per cent of the gross domestic product (the total size of the economy), which is 0.8 per cent or Rs 137.6 billion more than the earlier budget deficit ceiling set after the last summer floods.

President Asif Ali Zardari issued three separate ordinances on Tuesday to levy a flood surcharge, a special excise duty and a 17 per cent tax on sale of tractors. In addition, the government withdrew tax exemptions on agriculture inputs and textiles, leather, sports, surgical goods, carpets and plant machinery. These measures are expected to generate Rs53 billion during the remaining period of the current fiscal year, ending June 30, 2011.

On February 23, the FBR chairman had disclosed that tax evasion in Pakistan is estimated at 79 per cent of the total tax collection and admitted to the connivance of the FBR officials in the crime.

“The tax measures are pro-poor as these would provide much needed fiscal space to the government, helping it to get rid of inflationary State Bank borrowing,” said Dr Abdul Hafeez Shaikh.

While the new measures were adopted in part to make up for the failure of the government to pass a law levying a value added tax, the finance minister said that the bill was very much on the government’s agenda and would be tabled for parliamentery approval in the upcoming budget.

Finance Secretary Waqar Masood said the government also decided to control expenditure slippages by declining supplementary budgetary grants. He said the new tax measures will not trigger inflation, as the weight of these items in the Consumer Price Index – a basket of 375 items which is used to measure inflation – is not more than two per cent and the inflationary impact “very negligible.”

Published in The Express Tribune, March 17^th, 2011.