ISLAMABAD: The month of March proved catastrophic for the Federal Board of Revenue (FBR) that missed its collection target by a record Rs263 billion despite releasing Rs12 billion fewer tax refunds than what Prime Minister promised to exporters under the just-announced relief package.
Cumulatively, the shortfall in nine-month tax collection jumped to Rs693 billion against the original target and Rs459 billion compared to the revised target, according to FBR officials. The FBR’s performance went down amid delay in appointing a new FBR chairman due to the pressure applied by two competing lobbies.
From July through March of the current fiscal year, the FBR provisionally collected Rs3.063 trillion. In March alone, it was supposed to collect Rs595 billion but it provisionally received around Rs332 billion, according to the officials.
The collection in March was 10.5% less than the Rs371 billion received in the same month of previous year. The FBR was required to show a 60% increase in tax receipts over March last year, which was an impossible task and suggested how badly Pakistan negotiated the IMF loan deal.
The FBR provisionally collected Rs3.06 trillion in taxes, missing its nine-month target by a record Rs693 billion. The original annual revenue target was Rs5.5 trillion.
The Rs3.05-trillion collection was higher by 12.9% or Rs352.6 billion as compared to the same period of previous fiscal year. The FBR needed to collect Rs3.8 trillion at a growth rate of 39%. Last year, the government had received Rs2.7 trillion in the same period. The IMF has agreed to revise downward the original target to Rs5.238 trillion. When compared with the IMF’s revised target, the nine-month collection fell short of the goal by Rs459 billion.
However, ambiguity remains about what the actual target the IMF has now given after both sides reached a staff-level agreement last month.
The shortfall in tax collection was far higher than the impact of coronavirus contagion estimated by independent economists and the FBR. The economic activities started getting affected in the last 10 days of March but the FBR’s collection remained dismal throughout the month.
The real impact of lockdown of cities would start appearing from April. Former finance minister Dr Hafiz Pasha and former State Bank of Pakistan governor Shahid Kardar have estimated revenue shortfall due to the pandemic in the range of Rs150 billion to Rs290 billion for the April-June quarter.
The FBR itself has reportedly estimated an adverse impact of Rs300 billion from the COVID-19 in the remaining period of current fiscal year.
A major reason for the massive shortfall was that the tools - blocking taxpayers’ refunds and taking tax advances - were not available to the authorities this time around due to PM’s instructions to release refunds and closure of businesses in the last week of March. Prime Minister Imran Khan has promised to immediately release Rs100 billion worth of withheld refunds of exporters. Finance Adviser Dr Abdul Hafeez Shaikh earlier said the government would pay Rs30 billion in refunds by March 31 and the remaining Rs70 billion by April 15.
However, the FBR released refunds of Rs18 billion in March, including the Rs10 billion it gave before the PM made the announcement.
An FBR official argued that due to the partial lockdown, tax officers were not able to attend offices that affected the processing of refunds. The verification of refund claims is also consuming time, he said.
Taxpayers have accused the FBR of deliberately delaying the processing of refunds in February and March to inflate revenue collection. The FBR denies the allegation.
The FBR has remained without a permanent head for the past over two months after Shabbar Zaidi stopped attending office. The government has given the charge of looking after FBR’s affairs as chairperson to Nausheen Javed.
However, her status remains unclear as neither the government has decided to permanently appoint her nor has communicated her to continue at least till June 30.
On the insistence of the IMF, the federal government had initially set the FBR’s tax collection target at Rs5.5 trillion or 12.4% of gross domestic product (GDP). The IMF’s target was unrealistic as it required 45% growth in collection from last year’s Rs3.829 trillion. The IMF then forced Pakistan to take unprecedented revenue measures of Rs735 billion. The FBR has missed July-March collection targets for income tax, sales tax, customs duty and federal excise duty.
The FBR collected Rs1.13 trillion in income tax -higher by Rs153.7 billion or 15.6% over the same period of the last year. It paid Rs25 billion income tax refunds also.
The sales tax collection stood at Rs1.25 trillion - up by Rs206 billion or 19.7%. The federal excise duties collection increased by 15% to Rs187.5 billion. The Custom duties collection shrank by 7.2% to Rs471.3 billion.
Overall, at domestic stage, the FBR collected Rs1.7 trillion -higher by Rs293.5 billion or 21%. The problem remained at the import state where collection increased only 4.2% or Rs54.5 billion to Rs1.34 trillion in nine months.
Published in The Express Tribune, April 1st, 2020.
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