FBR may face Rs100b shortfall in first quarter

Wide gap may force taxmen to take advances from banks, big firms

ISLAMABAD: The Federal Board of Revenue (FBR) may sustain around Rs100-billion shortfall in tax collection against the trimmed first-quarter target of Rs1.071 trillion, which may increase prospects of returning to the old habit of taking heavy advances to narrow the gap.

A technical team of the International Monetary Fund (IMF) met with FBR officials the other day to review revenue forecasting and cash management arrangements in light of the under-preparation cash management policy of the government. The technical team is on a visit to Pakistan to assist in the implementation of the new Public Finance Management Act of 2019.

The technical team also inquired about differences between revenue numbers of two different wings of the FBR - the Directorate of Research and Statistics and the Pakistan Revenue Automation Limited.

The IMF questioned the reasons behind setting high monthly revenue targets for June, suspecting whether the FBR was taking advances to meet its targets. The FBR team insisted that it was not taking advances to meet the targets.

Historically, June’s target is set far higher than the targets for other months. One of the reasons for setting high targets for the month at the end of each quarter is advances that the FBR receives, including under Section 147 of the Income Tax Ordinance.

Sources said the FBR took roughly Rs15 billion in advances in August and it was again eying to receive advances this month due to the widening gap between its collection and the target.

As of Thursday, the FBR could provisionally collect Rs845 billion in taxes, requiring another Rs228 billion in the remaining two working days of the current month. Sources said the first quarter’s revised target is also going to be missed by a margin of around Rs100 billion.

According to sources, the collection of Rs228 billion in the remaining two days was not possible, therefore, the authorities were considering taking advances from banks and some big oil and gas exploration companies. Large Taxpayer Units (LTUs) had already approached some big clients, asking them to pay taxes in advance, the sources added.

Taking advances and blocking refunds was a common tactic used by the previous Pakistan Muslim League-Nawaz (PML-N) government to inflate revenues. After resisting it for a couple of months, the current Pakistan Tehreek-e-Insaf (PTI) government seemed to be following in the footsteps of its archrival when it came to meeting the revenue targets.

The original first-quarter target was Rs1.112 trillion that the FBR decided to reduce this week after seeing dismal results. Against the original target, the shortfall could have been nearly Rs140 billion, they added.

The government and the IMF have given an unrealistic target of Rs5.503 trillion to the FBR, which is not backed by required tax measures. A slowdown in economic activities has further complicated the matter for the FBR.

In the last fiscal year, the FBR had collected Rs3.829 trillion in taxes. The government took Rs735 billion worth of taxation measures in the current year’s budget while the nominal GDP growth is projected at 15% (3% real GDP plus 12% inflation), which will help collect additional taxes of Rs574 billion.

After taking into account the impact of 15% nominal GDP growth and Rs735 billion worth of taxation measures, the FBR could not collect more than Rs5.14 trillion in the current fiscal year, said Ashfaq Tola, a member of the government’s Tax Reforms Implementation Committee.

He said there was over Rs300-billion gap, which was neither explained by the IMF nor the government.

Internally, the FBR had come to the conclusion that it could not touch Rs5-trillion revenue collection threshold in the current fiscal year, said the sources. But the possibility of a mini-budget remained if the revenue collection also fell in the second quarter of the year, they added.

The FBR’s collection is also affected by the slowing economy, particularly the negative growth in large industries. Over 37,400 trading and business entities did not file sales tax returns for August, according to FBR officials.

FBR Chairman Syed Shabbar Zaidi directed the field formations to ensure that such entities file returns before the end of September in the hope of getting some extra revenues along with the returns. However, the authorities believe the majority of these entities were not doing business anymore.

The maximum number of non-filers of sales tax returns is in the jurisdiction of Lahore where 9,871 entities did not file August sales tax returns. In Karachi, about 7,258 entities did not file returns. In Faisalabad, about 3,425 entities did not file returns. The SBP has asked bank branches to remain open on Monday till 9:00 pm for tax collection.

Published in The Express Tribune, September 27^th, 2019.

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