Aided by regulatory duty, tax revenue increases 16.3% to Rs1.712tr

Collection still short of target, shortfall may add 0.3% of GDP to budget deficit


Shahbaz Rana December 31, 2017

ISLAMABAD: Aided by strong growth in collection through import duty, tax authorities managed to rake in over Rs1.712 trillion during the first half of the fiscal year, but the amount still remains significantly short of the target.

Till Saturday evening, the Federal Board of Revenue (FBR) provisionally collected Rs1.712 trillion during July-December of fiscal year 2017-18, registering a growth of over 16.3% in collection. It, however, needed 19.2% growth if it wants to hit the annual target of Rs4.013 trillion.

The authorities believe that they were still in a position to get another Rs10 billion, as customs offices will remain open on Sunday (today) as well. The main contributor in the first-half year collection was customs and regulatory duties at the import stage. The provisional customs duty collection during the first half of the year stood at around Rs290 billion - up by 33% year-on-year.

The main reason behind the substantial increase in customs duty collection was the levy of regulatory duty on hundreds of tariff lines to curb imports. Historically, the share of customs duty used to be one-tenth in total revenue collection that has now almost doubled.

Senior officials of the FBR claimed that the collection may further increase once all payments in the pipeline are cleared. But even then, the FBR will miss its first-half target of Rs1.801 trillion.

The shortfall in collection may add about 0.3% of Gross Domestic Product to the budget deficit.

The FBR’s monthly collection stood at Rs406 billion in December, which was Rs18 billion or 4.6% higher than the collection made in the same month of the previous fiscal year. The FBR’s December collection target was Rs438.2 billion.

The FBR’s official position remains that the target for the current fiscal year has been fixed with an annual increase of 19.2% over the previous year. To remain at 19.2%, the FBR needed Rs1.754 trillion in the first half.

Latest revenue collection results have reduced hopes of achieving the annual tax collection and fiscal deficit targets. The Rs1.712-trillion first-half year collection was 42.6% of the annual target. The FBR was required to achieve at least 45% of the annual target in the first half, according to officials at the Ministry of Finance.

During the Post Programme Monitoring talks with the International Monetary Fund that ended over two weeks ago, the Finance Ministry and the FBR had assured the IMF that it would achieve the annual revenue collection target. On the basis of this assurance, the Finance Ministry was of the view that the budget deficit in the current fiscal year would remain around 5% of the GDP or Rs1.810 trillion. The original budget deficit target for the current fiscal year, which parliament approved, is Rs1.479 trillion or 4.1% of the GDP.

At the time of making the budget, the government had inflated its revenue receipts and under pitched its expenditures. Due to this, the budget deficit in the first quarter widened to 1.2% of the GDP.

The IMF team was of the view that Pakistan’s budget deficit by the end of the current fiscal year would increase to a minimum 5.4% of the GDP or Rs1.95 trillion.

Minister of State for Finance Rana Muhammad Afzal Khan said on Thursday that the government would try to restrict the budget deficit to 5% of the GDP.

The FBR is struggling to enhance its revenues despite availing the bonanza of high regulatory duty and rupee devaluation that has increased the collection of taxes at the import stage. According to the FBR’s estimates, about 7.2% devaluation of rupee against the US dollar would give it an extra benefit of minimum Rs55 billion.

In addition, the collection of duty would also increase by Rs25 billion due to levy of regulatory duty on hundreds of tariff lines to curb imports.

This additional benefit of Rs80 billion is over and above the Rs120-billion worth of revenue measures that the FBR took at the time of making the budget.

The FBR is also struggling to improve the narrow tax base, as despite numerous extensions, the number of income tax return filers remained at 1.140 million -down from 1.216 million. Under the law, all citizens of the country are bound to file income tax returns after the close of a fiscal year.

Pakistan has one of the lowest tax-to-GDP ratios in the world. The FBR’s tax-to-GDP ratio remained at 10.5% at the end of the last fiscal year 2016-17.

Published in The Express Tribune, December 31st, 2017.

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COMMENTS (1)

Hassan Ali | 6 years ago | Reply But please account for the refunds that FBR is not giving and advances that FBR field units have taken. Please carry out an independent audit of these numbers which by a conservative estimate cross Rs 450 Billion
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