Widening gap : Government faces Rs65b shortfall in tax collection

Missed target makes it difficult to bridge the income and spending gap.

ISLAMABAD:

The gulf between tax collection and target has kept widening despite imposition of new levies, as authorities are facing a Rs65 billion shortfall in the first nine months of the current fiscal year.

This has made it more difficult to restrict the gap between national income and spending at Rs942 billion.

Provisional tax collection data shows that until March 26, the Federal Board of Revenue (FBR) managed to collect Rs975 billion, while authorities were expecting to collect up to Rs25 billion in the remaining five days of the month. Still, FBR will be Rs65 billion short of the July-March target of Rs1,064 billion, officials said.

So far, authorities have achieved almost 12 per cent growth in revenue collection which is not enough to meet the revised Rs1,604 billion tax target. FBR needs to have over 30 per cent growth to reach the target.

During the recently-concluded talks between the International Monetary Fund and Pakistan, the Fund relaxed the ceiling for budget deficit – the gap between income and spending - to Rs942 billion or 5.5 per cent of the total size of economy, which is Rs138 billion more than the earlier ceiling.

Any shortfall will further widen the gap and the estimated Rs65 billion shortfall is likely to push the budget deficit to near six per cent of GDP.

So far, there is sluggish economic activity which is resulting in a slowdown in sales tax growth at domestic stage. FBR managed to achieve 6.6 per cent growth in sales tax collection on the domestic front. Excise duty on the domestic side also grew marginally by 2.6 per cent in the first nine months of the current fiscal year.

In March, FBR has so far collected around Rs100 billion against Rs80 billion in the same period of the last financial year, owing to an unprecedented growth of 76 per cent in direct taxes. This growth was due to the change in advance taxes deposit date.

Despite the Rs100 billion collection, authorities are Rs57 billion short of the monthly target. New taxes, imposed in mid-March in a bid to generate an additional Rs53 billion, are not fully reflected in the March collection, as their impact will be evident in April numbers.

During the first nine months, FBR collected Rs352 billion on account of direct taxes against Rs316 billion in the same period of previous year, indicating a growth of 11.5 per cent.

Overall, sales tax collection stood at Rs417.3 billion in nine months. Sales tax at import stage stood at Rs204 billion against Rs167.5 billion last year, indicating a growth of 22 per cent. But sales tax collection on the domestic front is showing real problem for the economy as collection remained at Rs213 billion compared to Rs199 billion the previous year, registering a nominal growth of 6.6 per cent.

So far, federal excise duty collection stood at Rs86 billion in nine months, compared with Rs82 billion in the corresponding period of last year, registering a growth of 5.3 per cent. FED on imports helped the government to collect Rs11.7 billion against Rs9.2 billion, showing a growth of 27.5 per cent.

Excise duty at the domestic stage generated Rs75 billion as compared to Rs73 billion last year, registering a nominal growth of 2.6 per cent.

Published in The Express Tribune, March 29^th, 2011.