FBR makes quarterly adjustments to meet annual revenue target

Share of income tax in total tax collection reduced to slightly over Rs2trn while sales tax and fed excise duty go up

ISLAMABAD: Pakistan has realigned its quarterly revenue collection targets with the benchmarks set by the International Monetary Fund (IMF) under the $6 billion programme but the overall annual target remains unchanged at Rs5.503 trillion.

The government has reduced the share of income tax in the total tax collection, which will be compensated by increasing the share of sales tax and federal excise duty. The share of income tax collection is now projected at only 36.8% -- slightly over Rs2 trillion.

The indirect taxes are regressive in nature that affects the poor the most. The reduction in the income tax collection target is also contrary to promise of Prime Minister Imran Khan who had vowed to recover taxes from the rich.

The adjustments within the monthly and quarterly targets have been made due to misalignment in the IMF and the Federal Board of Revenue's (FBR) internal targets and poor collection during the first quarter. The goalpost for the first quarter was changed just 5 days before its ends.

Although the annual target largely remains unchanged, the first half target, which was already relatively easier one, has been further relaxed to only 42.9% of the annual target of Rs5.503 trillion. The FBR was struggling to achieve even this relatively easier target.

The downward adjustments within the monthly targets were made amid anticipation of a massive shortfall in the first quarter's original target of Rs1.112 trillion. As of September 25, the FBR provisionally collected Rs825 billion.

The tax collector needs another Rs246 billion in the remaining five days of this month to even hit the downward target of Rs1.071 trillion, which is in line with the target that the IMF set at the time of approval of the programme. During the previous programmes, the FBR used to set higher than the IMF given quarterly targets to keep its working force at toes.

Against the budgeted tax collection figure of Rs5.555 trillion, the IMF has given Rs5.503 trillion target under the programme. In the new adjustments, the FBR set the monthly and quarterly targets while keeping in the mind the IMF's target, according to the FBR's latest projections.

The FBR has reduced its first half (July-December) target from Rs2.5 trillion to Rs2.36 trillion – a reduction of Rs130 billion. However, it increased the third quarter (January-March) target by Rs85 billion. The fourth-quarter target has been adjusted downward by only Rs10 billion.

The latest adjustments reaffirm that the IMF has turned down Pakistan's request to lower the annual revenue collection target of Rs5.5 trillion. During an interaction with media, IMF's Mission Chief to Pakistan Ernesto Rigo categorically said that the "revenue collection target will not be revised".

But the FBR Member Inland Revenue Policy Dr Hamid Atiq Sarwar told the National Assembly Standing Committee on Finance earlier this month that the FBR could collect between Rs4.8 trillion to Rs5.2 trillion.

Quarterly adjustments

Against the original target of Rs1.112 trillion, the FBR has now revised down the first quarter target to Rs1.071 trillion – a reduction of Rs41 billion which is in line with the IMF target. The major adjustment was made in the September's target that has been brought down to Rs422.7 billion from original Rs467.5 billion.

Even against Rs422.7 billion, the FBR has so far collected Rs245 billion, including major periodic payments received on Wednesday.

The second-quarter target (October-December 2018) has been reset to Rs1.3 trillion as against the original target of Rs1.4 trillion – a reduction of Rs89.4 billion. October's target has been reduced by Rs18 billion but November's target is increased by Rs21.7 billion.

However, the major downward adjustment has been made in December target – down to Rs508.5 billion from Rs600 billion. The half-yearly target of Rs2.36 trillion is now reduced to 42.9% of the annual target.

The FBR has increased the third quarter (January-March) target to Rs1.4 trillion – an increase of Rs85 billion. January's target has been increased by Rs46.2 billion, February by Rs41 billion and March target is marginally reduced by Rs3 billion.

For the last quarter of the current fiscal year, the FBR has now set a target at Rs1.746 trillion – a reduction of Rs10 billion. But June 2020's target has been lowered by Rs72.3 billion. This reduction is compensated by increasing April's target by Rs35 billion and May's target by Rs29 billion.

The FBR has cut the income tax collection target from Rs2.1 trillion to Rs2.027 trillion, which is just 36.8% of the total taxes. The sales tax share has been increased from Rs2.165 trillion to over Rs2.2 trillion – 40% of the total target. The federal excise duty target has been increased to Rs384 billion while the customs duty target has been cut by Rs11 billion to Rs889 billion.