ISLAMABAD: Despite applying all ‘means’, the government has missed the annual tax collection target by over Rs250 billion. That also resulted in missing even the revised budget deficit target, unravelling problems on the fiscal front for the government.
The adverse performance on the fiscal front during the fourth year of the PML-N government has exposed the vulnerabilities of the economy, particularly at a time when the political situation also remains fluid.
As of 11.30 pm on Friday night, the Federal Board of Revenue provisionally collected Rs3.330 trillion against a parliament’s approved tax collection target of Rs3.621 trillion for FY2016-17 that ended on Friday.
“Till 11.30 pm, the shortfall in the tax collection was Rs291 billion, which is expected to improve by about Rs40 billion once the final figures are available,” a senior official of the FBR told The Express Tribune.
He said Rs40 billion payments were in the pipeline and banks would clear cheques till midnight. Despite that the FBR will miss its annual target by Rs250 billion.
On May 26, Finance Minister Ishaq Dar had revised downward the FBR’s tax collection target by Rs100 billion to Rs3.521 trillion. But even this revised tax collection target has been missed with a wide margin.
The shortfall in tax revenue has surfaced despite the fact that the federal government resorted to some arguably questionable means.
Sources in the FBR said the authorities concerned blocked taxpayers’ genuine refunds, took advances after June 15 and asked the Accountant General of Pakistan Revenue, Sindh and Punjab departments, to treat payments till July 7 as payments made on June 30.
The country’s fiscal year ends on June 30 and new financial year starts on July 1 every year.
During the PPP’s tenure, the then State Bank Governor Shahid Kardar had refused to book Rs43 billion against June 30 entry that had actually been deposited on July 4 of that year, terming it an illegal act.
At Rs3.330 trillion, the FBR could manage just 7% growth in the revenue collection which is lower than even the nominal economic growth rate and suggests massive tax leakage.
Even if the FBR manages to collect Rs3.370 trillion, it will achieve only 8% growth in revenues over the previous year’s collection of Rs3.114 trillion.
At Rs3.370 trillion collection the FBR’s tax-to-GDP ratio would also slip to 10.6% as against 10.8% during the previous fiscal year. This is despite the fact the federal government levied additional taxes and charged higher sales tax on petroleum products.
Sources in the finance ministry said due to massive shortfall in the tax collection, budget deficit — gap between expenditures and revenues — could even exceed 4.5% of Gross Domestic Product or Rs1.433 trillion. For FY2016-17, parliament had approved Rs1.21 trillion or 3.8% of GDP as the budget deficit target.
The federal government will miss its budget deficit target by at least Rs225 billion or 0.7% of GDP. While unveiling new fiscal year’s budget, the finance minister had feared that the budget deficit may swell to 4.2% of GDP against the target of 3.8%. The International Monetary Fund had projected that the budget deficit might slip to 4.5% but Dar did not agree with the IMF’s forecast.
Any collection below Rs3.4 trillion will be a shock for the Q Block – the seat of the finance ministry, as it will push the budget deficit above the fiscal year 2015-16 level of 4.6% of GDP. This will expose problems on the fiscal front after serious setbacks to the external sector.
Current account deficit is also expected to remain close to $10 billion against the target of $4.5 billion set by the finance ministry for FY2016-17. This resulted into erosion of official foreign currency reserves and huge external borrowings.
The government had to resort to arm-twisting measures to even cross the Rs3.3 trillion mark, said the sources. The FBR took about Rs50 billion in advance taxes from oil & gas, telecommunication and banking companies. The huge advances that the government took in June would adversely affect the FBR’s revenue collection for July and August.
For FY2017-18, the government has proposed a collection target of Rs4.013 trillion which, under current circumstances, seems unrealistic.