Government warned ahead of committing another mistake

Revenue Advisory Council terms proposed Rs1,952b tax target unrealistic.

ISLAMABAD:

The Revenue Advisory Council has termed the proposed Rs1,952 billion tax target “over-ambitious”, and suggested lowering it by over Rs100 billion, exposing the government’s poor planning in formulating the next fiscal framework that may eventually lead to slapping taxes during the course of the year.

It is for the second consecutive year that the Revenue Advisory Council (RAC), the highest revenue advisory body, has forewarned economic planners about a fatal mistake. The government overruled a similar advice of RAC last year and later on, came not only under pressure of the International Monetary Fund in achieving the target, but also ended up slapping Rs53 billion worth of taxes in a haphazard manner.

RAC also opposed levy of additional taxes on the struggling economy and urged the government to collect revenues by cracking down on 700,600 identified tax evaders. However, there was a consensus to tap the agricultural tax potential. RAC discussed levy of an asset tax at a rate of 1.25 per cent from the next fiscal year. The final decision will, however, be taken during the next meeting.

“RAC is against the proposed Rs1,952 billion tax target and has worked out a realistic figure of Rs1,850 billion,” said RAC Convener Dr Hafiz Pasha, while talking to The Express Tribune. He said that for the outgoing fiscal year, the government cannot collect more than Rs1,530 billion, despite its insistence on collecting Rs1,580 billion.

Pasha, a former finance minister, said that at the base rate of Rs1,530 billion, the government will be able to have a windfall collection of Rs245 billion on account of 16 per cent nominal gross domestic product (GDP) growth (four per cent of GDP plus 12 per cent inflation).

On top of that, if the authorities continued the taxes levied on March 15, excluding the flood surcharge, the government will be able to collect an additional Rs75 billion in the next fiscal year, taking the total to Rs1,850 billion.

Finance Minister Dr Abdul Hafeez Shaikh had told a Senate panel on Wednesday that the continuation of March 15 tax measures would fetch Rs100 billion in revenues next year. For the outgoing fiscal year, the government had fixed a tax target of Rs1,667 billion, ignoring RAC’s advice of fixing a realistic target of Rs1,565 billion, bearing in mind the tax machinery’s inefficiency. Authorities have now lowered the target to Rs1,588 billion, that too, with Rs53 billion of additional revenue measures.

FBR Chairman Salman Siddique said that the RAC assessment did not keep in mind the new tax measures while coming up with the Rs1,850 billion figure.

Tax collection in 10 months

Bearing in mind parliament’s approved target of Rs1,667 billion, the government is facing a revenue shortfall of Rs137 billion by the end of June. According to FBR, in April the tax machinery collected Rs121 billion in taxes, remaining short of the monthly target by Rs30.2 billion.

With that, so far, the tax machinery has collected Rs1,140.8 billion in 10 months. FBR must collect Rs526.2 billion in the remaining two months to achieve parliament’s approved target. Though FBR insists that the revised target is Rs1,588 billion, it does not have a parliamentary approval.  The FBR needs to collect an average of Rs8.6 billion per day to meet parliament’s approved Rs1,667 billion target and Rs7.3 billion per day to achieve its own target of Rs1,588 billion, which too seems highly implausible.

Published in The Express Tribune, May 1^st, 2011.