Revenue receipts: Tax shortfall widens to Rs154b in 8 months

FBR receives Rs1.91tr in Jul-Feb, just 7% higher than previous year

ISLAMABAD: The shortfall in tax collection has increased to over Rs150 billion in just eight months as the Federal Board of Revenue (FBR) has so far provisionally collected Rs1.91 trillion in the current fiscal year, compounding government’s fiscal woes in a pre-election year.

Tax receipts rose only about 7% in July-February of fiscal year 2016-17, according to FBR officials. In absolute terms, the collection was just Rs108 billion higher than the comparative period of previous fiscal year.

In February, the FBR could collect Rs222 billion, registering a sluggish growth of 3% or Rs6.5 billion.

The growth rates of tax collection were even below the nominal economic growth, which is estimated at around 10%. This shows huge leakages that the FBR has been unable to plug.

It was supposed to collect Rs2.064 trillion in the first eight months, but it fell short of the target by Rs154 billion, according to officials of the tax machinery.

The government has set this year’s annual tax target at Rs3.621 trillion, 16% higher than the collection made in the previous fiscal year. However, the FBR has already declared the goal unrealistic, saying the finance minister set the target without taking tax officials on board.

In February, the government brought changes at the FBR’s top level after Nisar Muhammad Khan retired from the chairman’s post. It appointed Dr Mohammad Irshad as new chairman.

Besides, Rehmatullah Wazir was appointed as new member of Inland Revenue Operations, who will be responsible for 90% of tax collection.

In Wazir’s place, Dr Mohammad Iqbal was appointed as new member of Inland Revenue Policy following his promotion to Grade-21. The government has also named a new member Customs.

Finance Minister Ishaq Dar on Tuesday claimed that the federal government took a Rs90-billion hit on its revenues due to the decision of keeping petroleum prices unchanged most of the time. However, recently it has started increasing the prices and that too on a fortnightly basis.

Dar’s statement endorses the stance of tax authorities that blame the federal government for the revenue shortfall. The FBR says changes in tax policies at the time of annual budget announcement and during the course of the year have adversely affected revenue collection.

In the previous fiscal year 2015-16, the government had generated Rs676 billion in revenues on the sale of petroleum products on account of sales tax, federal excise duty and petroleum levy, according to the Fiscal Policy Statement 2016-17.

According to the FBR’s estimates, it can potentially collect Rs575.8 billion on the sale of petroleum products during the current fiscal year. At current rate of sales tax, it is anticipating a shortfall of at least Rs100 billion.

However, despite keeping prices below last year’s level, the government charged higher-than-standard 17% sales tax on petrol and high-speed diesel.

The growing shortfall in tax revenues has adversely affected the government’s budgetary projections as the first-half budget deficit stands at almost two-thirds of the annual target. The deficit - gap between expenditure and income - widened to 2.4% of gross domestic product (GDP) or Rs799 billion during July-December of FY17, according to the Ministry of Finance.

For the entire year, the government has set the deficit target at 3.8% of GDP.

The government is already facing problems in balancing its books due to no disbursement of the Coalition Support Fund by the US.

Massive tax exemptions granted to projects of the China-Pakistan Economic Corridor are also likely to affect FBR’s revenues in the years ahead.

Total revenues - tax and non-tax - stood at 5.9% of GDP in the first half of FY17, lower than the comparative period of previous year when the ratio was 6.5%.

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

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