FBR’s tax collection grows 14% to Rs506 billion

Government struggles to search for new avenues for revenue receipts

ISLAMABAD: The Federal Board of Revenue (FBR) has collected Rs506 billion in taxes in the first two months of the current fiscal year as the government scrambles to search for new avenues for revenue receipts in an attempt to reduce the projected budget deficit to less than 5% of the national economy.

Provisional tax collection in July-August FY19 stood at Rs506 billion, according to FBR officials. It was Rs62 billion or 14% higher than the revenue generated in the same period of previous fiscal year.

Tax authorities managed to meet the first two-month tax collection target on the back of Rs31 billion in receipts under the one-off tax amnesty in July.

The tax collection in August alone increased slightly to Rs250 billion, up 5.5% over the same month last year. However, it was less than the monthly target of Rs281.5 billion.

The trend suggests that upcoming months will be challenging for the FBR. The Pakistan Tehreek-e-Insaf (PTI) government has already started a drive to collect an additional Rs400 billion in taxes above the annual target of Rs4.435 trillion.

There is a huge scope for improving tax collection as the country faces revenue losses due to under-invoicing, smuggling of consumer goods and sales tax leakages at the domestic stage.

The Tax Reforms Commission, which submitted its report two years ago, had suggested measures for plugging revenue leakages, but they were not implemented.

The PTI government has appointed Dr Jahanzeb Khan as the new FBR chairman with the aim of tackling lobbies and enhancing revenue collection.

The previous National Assembly had approved an annual tax collection target of Rs4.435 trillion. The FBR requires 15.5% growth to reach the target as it closed the last fiscal year with collection of Rs3.842 trillion.

Tax authorities blame the Rs135-billion tax relief given by the previous PML-N government, restriction on collection of taxes by the telecommunication sector and lack of resolution of administrative issues for the slower pace of increase in revenue receipts.

They said massive tax cuts for individuals had started affecting the revenue growth.



Former finance minister Dr Hafiz Pasha and former central bank governor Shahid Kardar have also criticised the lowering of tax rate by the last government in a joint article. They argued that the tax relief was “inexplicable and utterly unjustified”, which has disproportionately benefited individuals with higher income.

The PTI government has already started contemplating to reverse the tax cuts and a presentation has recently been given to Prime Minister Imran Khan. It could cut the effective income tax exemption limit from Rs1.2 million to Rs800,000 besides increasing the maximum tax rate to at least 20%, said sources in the FBR.



The proposal is part of measures to reduce the projected 7% budget deficit to 5% of gross domestic product (GDP) for fiscal year 2018-19 .The plan included additional tax collection of around 1% of GDP or Rs385 billion, the sources said.

Government circles were of the view that the annual customs duty collection target of Rs735 billion had been understated by about Rs100 billion. This assumption is based on the fact that after presentation of the last budget, the rupee depreciated by about 9%, which would lead to increase in tax collection at the import stage.

Secondly, due to increase in crude oil prices in the international market, the FBR will also get relatively higher taxes at the import stage on petroleum products.



During July-August, customs duty collection stood close to Rs104 billion, which was about one-fifth of the total collection.

There was also a proposal to enhance regulatory duty close to maximum rates of the World Trade Organisation and increase the maximum customs duty rate of 20%, the sources said.

About 45% of total taxes are collected at the import stage, which indicates heavy reliance on indirect taxes. There are many withholding taxes that are collected at the import stage.

However, there are still huge leakages at the import stage, which can be plugged with effective enforcement of tax laws through the involvement of both the Customs and Inland Revenue Service officials.

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

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