FBR collection falls 31% in May

Decline comes due to partial suspension of economic activities due to Covid-19

Shahbaz Rana May 31, 2020

ISLAMABAD: The tax collection by the Federal Board of Revenue (FBR) slumped by over 31% to Rs227 billion in May due to partial suspension of economic activities, resulting into missing the downward revised target.

In May, the FBR provisionally collected Rs227 billion in taxes, down by Rs103 billion or 31.2% when compared with the collection in the same month of last year, according to provisional official figures.

May’s three time downward-revised tax collection target was Rs250 billion, which the FBR missed by a margin of Rs23 billion. The Rs250-billion target had been set while keeping in mind the harsh economic realities due to spread of the novel coronavirus in the country.

The Covid-19 pandemic started affecting Pakistan’s economy from the fourth week of March but the FBR’s performance remained below the benchmark throughout the fiscal year.

From July through May of the current fiscal year, the FBR provisionally collected Rs3.51 trillion, which was higher by only 6.8% when compared with the same period of the last fiscal year. The deadly pandemic, which has taken many lives, has provided an excuse to the economic mangers who are throwing the entire responsibility on the disease.

The government and the International Monetary Fund (IMF) now expect the FBR to collect at least Rs3.908 trillion, which will be slightly higher than the Rs3.83 trillion collected in the last fiscal year. For attaining the three time downward revised target, the FBR needs to generate Rs372 billion in June. In June 2019, the FBR had collected Rs578 billion.

The economic activities have been largely restored from mid of this month and people went on shopping spree ahead of Eidul Fitr. The government has now opened almost all the economic sectors and final decision about the remaining closed sectors is expected to be taken by the National Coordination Committee within a couple of days.

On the insistence of the IMF, the federal government had initially set the FBR’s tax collection target at Rs5.5 trillion, which should have been equal to 12.4% of gross domestic product (GDP).

The IMF’s target was unrealistic as it required a 45% growth in the collection from last year’s Rs3.829 trillion. The IMF then forced Pakistan to take unprecedented revenue measures of Rs735 billion.

But now public finances are expected to come under significant pressure. The IMF has projected that the budget deficit is expected to be 9.2% of GDP in this fiscal year due to a decline in tax revenue and an increase in public spending to support the healthcare response to the Covid-19 and social safety nets for the very poor.

However, the IMF expects the budget deficit will improve to some extent and will be around 6.2% of GDP in the next fiscal year, as it has proposed an Rs5.1-trillion tax collection target. The Rs5.1-trillion target will be 31% higher than the estimated collection in this fiscal year, which will again make it challenging for the FBR to achieve.

The low revenue collection will have serious implications for the country’s debt, which the IMF has now projected to increase to 90% of GDP by June this year.

Out of Rs3.51 trillion, an amount of Rs2.2 trillion or 62% was on account of indirect regressive taxes, excluding the withholding taxes that are also in indirect mode. The FBR provisionally collected Rs1.44 trillion in General Sales Tax, which was still better than the previous fiscal year and registered nearly 10% growth.

The collection on account of federal excise duty stood at Rs226 billion in 11 months of this fiscal year, up by about one-tenth. The collection on account of custom duties amounted to Rs550 billion, down by almost 11%. The income tax collection stood at around Rs1.3 trillion, which was higher by over 11%.

The FBR did not clear all the income tax and sales tax refunds, which Prime Minister Imran Khan had announced to pay to ease the liquidity crunch of the business community. It has so far cleared Rs60 billion refunds as against PM’s promise to pay Rs100 billion refunds by April 15.

Published in The Express Tribune, May 31st, 2020.

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