FBR sustains Rs385b tax shortfall in Jul-Jan FY20

With widening tax shortfall, govt has fast-tracked preparation for mini-budget

ISLAMABAD: The Federal Board of Revenue (FBR) has sustained a whopping Rs385-billion tax shortfall in first seven months of the current fiscal year and the number of tax return filers has also declined by 16% amid prevailing uncertainty due to the uncertain future of FBR chairman.

With the widening tax shortfall, the federal government has also fast-tracked its preparations for a mini-budget and on Friday reviewed again the proposals to increase or slap 17% sales tax on dozens of items including agricultural inputs, industrial goods, agricultural machinery and consumable items.

One of the mini-budget proposals is to charge sales tax on around 50 items on their retail market prices against the current factory prices.

Since the number of tax return filers remains below 2.35 million, the government on Friday gave another extension in the last date to February 28 in the hope of matching last tax year's (2018) number of 2.8 million return filers.

FBR claims loss of Rs330b due to import compression

Till January 31, about 2.336 million people had filed tax returns, down by 454,000 or 16.2% compared to the 2018 tax year.

From July through January of the current fiscal year, the FBR provisionally collected Rs2.405 trillion in taxes, according to the officials. The original target was Rs2.791 trillion and the FBR fell short of the goal by a record Rs385 billion.

The Rs2.791-trillion target for seven months was against the annual target of Rs5.5 trillion, which the IMF has lately agreed to revise down to Rs5.238 trillion. However, the federal cabinet has not yet revised the budget estimates for fiscal year 2019-20.

The Ministry of Finance is expected to present a mid-year budget review summary to the federal cabinet in February.

The Rs2.405-trillion provisional collection was 16% or Rs338 billion higher than the same period of last fiscal year. Last year, the government had collected Rs2.067 trillion in the same period.

On the insistence of the IMF, the federal government had set the FBR's tax collection target at Rs5.555 trillion or 12.4% of GDP.

The IMF had set an unrealistic target of increasing collection by 45% from last year's level of Rs3.829 trillion. It had forced Pakistan to take unprecedented revenue measures of Rs735 billion.

Sources said the IMF was again putting pressure on Pakistan to take additional revenue measures to achieve the annual Rs5.238-trillion target. They said the FBR's final assessment was that it could not collect more than Rs4.7 trillion without additional revenue measures.

The tax collection is falling short of the target despite imposition of an additional Rs735 billion worth of taxes by Prime Minister Imran Khan's government in the current fiscal year.

Sources said the government was currently in the process of giving final shape to the additional tax measures of Rs150-175 billion.

The seven-month collection was 16.3% or Rs338-billion higher than the previous year. However, it was largely the result of blocking exporters' refunds and enhanced sales tax collection on domestic sales of garments.

 

In the first seven months of FY20, the FBR's collection of sales tax stood at Rs995 billion, which was equal to one-third of the total collection.

The growth in revenue collection in the first seven months was slightly above the nominal GDP growth of 15%. However, the FBR believes that its efforts have been undermined by import compression, as there was a healthy growth of over 20% at the domestic stage.

In January alone, the FBR provisionally collected Rs320 billion, up by 17.6%. But it was short of the monthly target by Rs105 billion - the highest shortfall in any month in the current fiscal year.

The FBR was required to show 55% increase in collection over January last year, which was an impossible task and suggested how badly Pakistan negotiated the IMF deal.

The FBR has missed the July-January tax collection targets of income tax, sales tax, customs duty and federal excise duty.

The uncertain situation in the FBR headquarters has further complicated matters for the federal government. After remaining absent for two weeks and briefly attending the office in the remaining days, FBR Chairman Syed Shabbar Zaidi has again proceeded on leave on medical grounds.

This has sparked speculation that he may not return this time due to weak health and worsening performance of the tax machinery.

Zaidi had joined the office 10 days ago after availing a two-week medical leave. But since January 20, he had not been actively looking after his work and delegated many routine functions to the member Inland Revenue Policy and the member administration. He had already asked his senior officers to attend the upcoming IMF meetings.

Zaidi rejoined the office on January 20 on the desire of Prime Minister Imran Khan and at that time too, he was reluctant to come back, according to the sources.

FBR to grill 24,000 Pakistanis for buying dollars in bulk

The government needs to urgently take a decision whether it wants to continue with Zaidi or has to bring a new chairman. For the last almost three weeks, Member Inland Revenue Operations Seema Shakil, who theoretically is responsible for 80% of collections, has also not attended the office.

Tariq Pasha, Mujteba Memon, Nausheen Amjad Javed and Javed Ghani are among the probable candidates for the post of FBR chairperson, if the government decides to replace Zaidi.

The government on Friday transferred member customs operation just days before his retirement and the additional charge of member customs operation was given to Javed Ghani, who is currently serving as member customs policy.

Published in The Express Tribune, February 1^st, 2020.

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