Even a downward revised tax collection target is set to be missed

Share of income tax goes down, FBR provisionally collects Rs2.86tr in 11 months

ISLAMABAD: Amid a steep decline in the share of income tax in total collection, the government is going to miss even the downward revised target, after authorities could pool only Rs2.86 trillion during the first 11 months of the outgoing fiscal year, highlighting implications of ignoring administrative reforms.



From July to May of 2016-17, the Federal Board of Revenue (FBR) provisionally collected Rs2.86 trillion, which was Rs213 billion or 9% higher than the collection made in the comparative period of the previous fiscal year.

However. May’s collection figure of Rs342 billion was around 15% higher than the same month of the previous year.

For the outgoing year, the parliament had approved a Rs3.621-trillion tax collection target for the FBR. However, while presenting his fifth budget last week, Finance Minister Ishaq Dar said that the target had been revised downward to Rs3.521 trillion.

The FBR would have to collect Rs660 billion more in June alone, which requires 42% growth and is next to impossible.

Dar blamed the change in fiscal policies for missing the target. He said that a hit of over Rs120 billion has been sustained due to keeping tax rates on petroleum products low compared with the previous year. However, his argument does not hold ground, as the entire shortfall is on account of income tax collection. The collection of indirect taxes is even better than the earlier approved targets.

The argument of shortfall due to low tax rates on petroleum products also lacks substance because the government is still charging higher than the standard 17% sales tax. It is also not doing anything about mismanagement of the case of collecting federal excise duty on cigarettes, where its collection could fall short of last year’ revenues by Rs42 billion. Instead of taking corrective measures, the government has proposed reduction in federal excise duty rates on low-category cigarettes.

Although the government cut the FBR’s annual target by Rs100 billion, the income tax collection annual target has been slashed by Rs180 billion. In order to make for the shortfall, the customs duty target has been increased by Rs78 billion to Rs491 for the outgoing fiscal year. This has further increased the government’s reliance on indirect taxes.

As against the income tax target of Rs1.558 trillion, the FBR is expecting a collection of Rs1.378 trillion under this head in the outgoing fiscal year. This would reduce the share of income taxes in the total revenue collection from 43% to 39%.



Collection of indirect taxes has increased from Rs2.06 trillion to Rs2.14 trillion, enhancing its share to 57% in total revenues.

For the new fiscal year 2017-18, the government has proposed Rs4.013 trillion as collection target. “We do not own this target, as this has been set without taking adequate revenue measures,” said sources in the FBR. They said that Rs4.013 trillion was Dar’s target, which is unrealistic.

Even in the next fiscal year, the ratio of direct tax collection will be below 40%, which means that the government’s claim that it broadened the tax base is just a rhetoric. For the new fiscal year, the FBR has set the income tax collection target at Rs1.594 trillion.

Most income tax measures, almost all the withholding taxes, are also indirect in nature. The manufacturers and distributors build the cost of these taxes into prices of their goods and recover from the consumers.

By including withholding taxes, the share of indirect taxation is over 87% in the total revenue collection, said the sources.

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

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