ISLAMABAD: The government is badly failing in its promise to enhance tax revenues as the shortfall in collection in first half of the current fiscal year has widened to Rs175 billion, signalling a slowdown in the economy and underscoring the need for taking immediate corrective administrative measures.
The shortfall against the target set for the July-December period was equal to 0.5% of gross domestic product (GDP). This has made it impossible to achieve the revised budget deficit target of 5.6% of GDP or Rs2.2 trillion, unless additional measures are taken and administrative changes are made.
Till Monday evening, the FBR could provisionally collect only Rs1.79 trillion in taxes in first six months of the current fiscal year against the requirement of Rs1.96 trillion, according to Federal Board of Revenue (FBR) officials. The number would slightly improve once book adjustments were fully accounted for, they added.
The FBR was able to reach close to Rs1.8 trillion after taking billions of rupees in advances from public-sector companies and commercial banks.
The government on Monday also increased sales tax on petroleum products to the standard 17% aimed at supporting revenue collection. The general sales tax on high-speed diesel was increased from 13% to 17% and on petrol from 8% to 17%.
The Rs1.785-trillion collection of taxes during the first half was Rs60 billion or 3.5% higher than the collection made in the same period of previous fiscal year. During July-December of the last fiscal year, the FBR had collected Rs1.73 trillion.
The 3.5% growth was far lower than the nominal economic growth of over 11%, indicating huge revenue leakages. The first half year’s collection was equal to only 41% of the annual target of Rs4.4 trillion. The provisional collection fell short of the desired pace of 14.5% growth that was needed to hit the annual target of Rs4.4 trillion. The Rs1.8-trillion tax collection was short of the original goal by at least Rs175 billion.
This has raised questions over the government’s ability to achieve its goal of enhancing revenue collection aimed at the broader objective of lowering the country’s debt. Finance Minister Asad Umar has already announced the introduction of a mini-budget in mid-January but he has stated the purpose of the second mini-budget is to support economic growth.
The Ministry of Finance’s internal assessment showed that without additional measures, the FBR may not cross even the Rs4.1-trillion mark, according to sources in the ministry. They said the finance minister was not happy with the FBR’s performance.
The government is of the view that if the FBR cannot achieve even 10% annual growth in collection, then it should be closed down, according to the people privy to these meetings.
Only in December, the FBR’s provisional collection fell short of the target by Rs74 billion, according to the sources. The collection for the month stood at Rs395 billion, down Rs21 billion, or 5%, as compared to December last year. The monthly target was Rs469 billion.
However, Dr Ashfaque Hasan Khan, a senior member of the Economic Advisory Council (EAC), argued that the FBR’s performance should not be compared with last year due to the inflated revenues reported previously.
“Are we measuring the FBR’s collection with a right base, as the previous year’s total tax collection of Rs3.842 trillion was the result of taking hundreds of billions of rupees in advances,” asked Khan. He said the FBR under Asad Umar was not doing what it had done under Ishaq Dar.
In September, the PTI government had also got approved a mini-budget from parliament. The FBR had hoped that since the government notified new tax measures in the mini-budget, there would be no shortfall in targets in the remaining nine months of the fiscal year.
But the situation is not improving and there is a shortfall in the tax collection against almost every notable head. FBR authorities insist that this was a sign of slowing economic activities and shrinking purchasing power of the people due to growing inflationary pressures. Withholding tax collection from imports, salaried persons, dividend income, technical fees and contracts dropped massively in the current fiscal year.
During the recently concluded talks, the International Monetary Fund (IMF) demanded that Pakistan increase the FBR’s annual tax collection target to Rs4.7 trillion. The Supreme Court’s decision to stop the FBR from collecting advance tax on mobile phone calls and reduction in sales tax on petroleum products also impacted the tax collection, according to the FBR authorities.
But the government also needs to make right appointments in the FBR as there was clear disconnection between the headquarters and the FBR’s field formations.
Published in The Express Tribune, January 1st, 2019.