FBR misses tax collection target by Rs74 billion

Collection stands at Rs2 trillion growth slows down to 17.7%

ISLAMABAD: The federal government has collected over Rs2 trillion in taxes during the first seven months of the current fiscal year, but fell short of the target by Rs74 billion, as the growth in collection slowed down to 17.7%.

The shortfall will make it difficult for the government to achieve the revised budget deficit target despite decent revenue collection by the Federal Board of Revenue (FBR). The shortfall may add about 0.3% of gross domestic product (GDP) to the budget deficit. Parliament has set the budget deficit target at 4.1% of GDP.

In the first seven months of 2017-18, provisional net revenue collection was recorded at over Rs2 trillion, announced the FBR headquarters on Wednesday. The collection was higher by 17.7% or roughly Rs300 billion over the same period of the previous fiscal year.

Parliament has approved Rs4.013-trillion tax collection target that needs a 19.2% growth.

For the first seven months (July-January), the FBR had set the target of Rs2.074 trillion. However, the FBR management appears confident about its performance. When the present government took over in 2013, the net revenue collection for the entire year was less than Rs1.95 trillion, said the FBR in a statement.

Provisional collection for January 2018 was Rs272 billion excluding the collection on account of book adjustment, which may range between Rs2 and Rs3 billion, said the FBR. It had set Rs273-billion target for the month.

The FBR said the monthly collection figure was very encouraging as in January 2017 Rs228 billion had been collected and there was an increase of 19%.

However, a main reason for 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 had been one-tenth in the total revenue collection, but it has now almost doubled.

Owing to the regulatory duty, the share of customs duty collection in total taxes jumped to 15% by the end of last fiscal year, showed the Fiscal Policy Statement 2017-18. This further went up to 16.5% in the first seven months of the current fiscal year.

“To bolster macroeconomic stability, revenue mobilisation should be given priority along with rationalisation of current expenditures,” according to the Fiscal Policy Statement 2017-18.

The latest revenue collection results have dimmed hopes of achieving the annual tax collection and fiscal deficit targets. The Rs2-trillion collection in the first seven months was only 49.8% of the annual target.

The FBR was required to achieve at least 51.7% of the annual target in the seven months, according to officials of the Ministry of Finance.

The FBR is struggling to enhance its revenues despite support from the high regulatory duty and rupee devaluation that has increased tax collection at the import stage.

According to the FBR’s estimates, the depreciation of the rupee against the US dollar will give it extra benefit of a minimum Rs55 billion.

In addition to that, duty collection will increase by Rs25 billion due to the levy of regulatory duty. The FBR is also struggling to improve the narrow tax base as despite numerous extensions, the number of income tax return filers remained at 1.22 million.

Fiscal Policy Statement about FBR

The Fiscal Policy Statement that the finance ministry tabled in parliament this week pointed out that the FBR’s tax-to-GDP ratio stood at 10.5% in the last fiscal year, which was even below the level recorded in the preceding year.

It added the pace of direct tax collection slowed down because of decline in corporate profitability, especially of the banking sector as well as reduction in rates and announcement of tax incentives.

The statement showed that withholding tax contributed more than two-thirds to the total income tax collection in the previous fiscal year. Contractors, imports, salary, telephone bills and dividends were the top five withholding tax contributors. 

Published in The Express Tribune, February 1^st, 2018.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.