Revenue shortfall widens to Rs70b in Jul-Aug

FBR collects Rs574b in taxes against target of Rs643.7b

ISLAMABAD: The shortfall in tax collection has widened to Rs70 billion despite a decent growth of 15% - a ratio that reflects ground realities but is three times lower than what the government needs to meet the annual revenue target of Rs5.5 trillion.

The provisional revenue collection results for July-August 2019 once again indicate that the Rs5.503-trillion target is unrealistic, which has to be revised downwards.

From July through August of the current fiscal year, the Federal Board of Revenue (FBR) received Rs574 billion in taxes against the target of Rs643.7 billion, according to provisional official statistics. This resulted in a revenue shortfall of Rs70 billion, even after ignoring the Rs10-billion discrepancy in July.

Overall, the collection in first two months of the current fiscal year was higher by Rs70 billion or 15% when compared with the collection of Rs498 billion in the same period of previous fiscal year.

The FBR received a hit of Rs60 billion in August alone as it could collect only Rs292 billion against the monthly target of Rs352.2 billion, said the officials. Still the collection in August was up 18% or Rs45 billion compared with receipt of Rs247.4 billion in August last year.

The government's drive to broaden the tax base is not yielding desired results. Although the number of tax return filers has jumped from 1.8 million to 2.6 million, the actual tax contribution by these additional 800,000 filers is just Rs2.4 billion, said the sources. Of that amount, Rs1.5 billion was contributed by the companies.

FBR Chairman Shabbar Zaidi has also found fault in the tax machinery which, according to him, is not effectively utilised to collect maximum revenues. He has sought a new action plan from field formations to increase income tax collection.

The entire income tax force is collecting only 7% of the total income tax and the rest is being generated automatically, according to a note that Zaidi sent to the field formations on Friday, asking them to redeploy the workforce.

Out of the Rs574 billion collected in July and August, the customs duty collection stood at Rs96 billion, registering a negative growth of 10% over the same period of previous year.

The Customs Department missed its two-month target by Rs24 billion, which pointed out the problem - compression of imports.

The International Monetary Fund (IMF) has given Rs5.503-trillion annual tax collection target to the FBR. The tax machinery requires 44% growth to achieve the target as it closed the last fiscal year at Rs3.829 trillion. In its history, the FBR has achieved maximum annual growth of 21% in any fiscal year.

The shortfall in revenue collection has become a challenge for the government of Prime Minister Imran Khan, who has declared tax collection as his top priority.

The Rs574-billion collection is only 10.4% of the annual target of Rs5.5 trillion. The revenue collection target is the lynchpin of the IMF programme and the government's inability to achieve quarterly targets could result in introduction of another mini-budget.

The FBR missed the two-month target despite the fact that the government imposed a record Rs733.4 billion in additional taxes in the budget. A majority of these taxes are direct taxes, yet the FBR has struggled to achieve sales tax and customs duty targets.

The most aggressive inflationary taxation measure was the 17% sales tax at the manufacturing stage of textile, leather, carpets, sports and surgical goods. The FBR has claimed that it has launched new software to automatically pay sales tax refund to exporters in 72 hours. However, the sources said practically no new system had been made operational.

"Customs duty collection in first two months is the outcome of economic policies and also reflects prevailing economic situation," Zaidi said while talking to The Express Tribune.

He added that the effective customs duty rate had come down to 7.4% from 9.3% due to the abolition of duty on 1,600 tariff lines.

The government has also targeted to curb imports to contain the current account deficit, which has jeopardised the FBR's revenue collection on account of withholding tax, sales tax and custom duty at the import stage.

The IMF has set the first-quarter (Jul-Sept) revenue target at Rs1.070 trillion and it will assess the progress in its first review of the $6.2-billion loan programme likely to be held in November or December.

The FBR now needs to collect Rs496 billion in September at 29% growth rate to hit the IMF-determined ceiling. However, it seems an uphill task given the overall economic slump and negative business sentiment.