FBR misses original tax collection target by record Rs1.58 trillion

Poor governance, Covid-19 outbreak impacts collection

ISLAMABAD:

Marred by poor governance and outbreak of Coronavirus, the Pakistan Tehreek-e-Insaf (PTI) government has missed its original tax collection target by a record Rs1.58 trillion as it could pool nearly Rs3.981 trillion by end of fiscal year 2019-20.

But the Rs3.981 trillion collection was better than the fourth time downward revised target of Rs3.9 trillion. From July through June of 2019-20, the FBR provisionally pooled Rs3.981 trillion, which was higher by Rs154 billion or 4% compared to fiscal year 2018-19, FBR officials told The Express Tribune.

However, after adjusting Rs100 billion refunds, which were given from the budget and Rs30 billion pending refunds of the textile sector, the 2019-20 collection was almost at par with last year’s level when the FBR had collected Rs3.828 trillion in taxes.

Collection was partially impacted by spread of respiratory disease. The FBR also lost more than 37 officers, including a grade-22 officer, Zahid Khokhar, due to the contagion. This time the FBR did not resort to the practice of huge advances, although this trend continued till April.

The new Member Operations FBR, Mohammad Ashfaq, had also given instructions to his team not to force the taxpayers to pay taxes in advances. While breaking from the past practice, the FBR also paid tax refunds even on the last day of the fiscal year.

On Tuesday, FBR paid Rs7.9 billion tax refunds, which is encouraging sign of building trust with the taxpayers.

The tax collection for the third consecutive year, including two years of the PTI government, remained short of even Rs4 trillion psychological barrier. The Rs3.981 trillion provisional collection was short of Rs4 trillion despite the fact government, for the first time, paid Rs100 billion tax refunds from the budget, which tantamount to inflating revenues.

The Rs3.981 trillion collection was less by Rs1.575 trillion or 28.4% as compared to the original target of Rs5.555 trillion approved by National Assembly in June last year.

The three downward revisions in tax collection target came before the outbreak of Covid-19, while the fourth revision had been necessitated due to the deadly outbreak that largely crippled industrial and services sectors.

To achieve Rs5.555 trillion target, the PTI government had imposed the highest ever Rs735 billion in additional taxes.

While conceding to the International Monetary Fund’s (IMF) demand to set the Rs5.555 trillion tax collection target, Prime Minister Imran Khan had taken personal responsibility to achieve the goal post.

The premier had brought in his trustworthy Shabbar Zaidi as the FBR Chairman to achieve the target. But Zaidi too could not resist the political and bureaucratic pressures and resigned in February this year after staying away from office for two months.

The Rs5.555-trillion tax collection target was expected to be missed by Rs900 billion even before the coronavirus outbreak due to unsatisfactory performance of the FBR and the PTI government’s decision to compromise with pressure groups, including traders.

Blowing away the third opportunity in two decades to rope traders in to the tax net, the federal government in November last year succumbed to their pressure and agreed to give them sweeping concessions, including relaxation in registration conditions, reduction of income tax rates by 66% and postponement of the CNIC condition.

Two major concessions—sales tax registration exemption for traders paying up to Rs1.2 million annually in electricity bills and owning a 1,000 square feet shop – rendered the CNIC condition largely ineffective.

In the last fiscal year, the FBR received Rs3.829 trillion in taxes, which was lower than the preceding year’s collection despite two mini-budgets introduced during the course of the year.

Even if economic activities had remained unaffected, the FBR would have missed its annual target by at least Rs900 billion to Rs1 trillion, according to Ashfaq Yousaf Tola, chairman of the government’s Budget Anomaly Committee 2020.

In April this year, the Tola Associates had stated that FBR’s tax collection may fall short of the target by a whopping Rs1.5 trillion to only Rs4 trillion in the aftermath of coronavirus outbreak that would further increase the country’s debt burden.

The FBR’s machinery had also not wholeheartedly cooperated with former FBR chairman Zaidi. Postings of few officers with questionable reputation as head of regional tax offices also compromised the tax collection, according to sources in the FBR. Some of them are still at key posts.

Tax-wise Break Up

The FBR collected Rs1.492 trillion in income tax in the just ended fiscal year – higher by Rs68 billion or 4.8% over the preceding year. A key factor for the increase in income tax collection was the restoration of mobile phone taxes. The original income tax target was Rs2.027 trillion, which the FBR missed by a wide margin of Rs535 billion.

The FBR provisionally collected Rs1.592 trillion in sales tax, which was higher by Rs131.2 billion or 9% over the preceding year. The collection was increased because of withdrawal of imposition of 17% sales tax on domestic sales of textile, garments, surgical, sport and leather goods. The original sales tax target was Rs2.2 trillion that the FBR missed by a margin of Rs608 billion.

The tax machinery collected Rs257.5 billion in federal excise duty – up by Rs16.6 billion or 6.9% over the preceding year. However, its original excise duty collection target was Rs384 billion that it missed by a margin of Rs127 billion.

The custom duties collection stood at Rs619.3 billion -- down by Rs60.3 billion or 8.9% as compared to the preceding year. The original target was Rs889 billion that FBR missed by a margin of Rs270 billion.

The FBR paid Rs134.8 billion in refunds in the just ended fiscal year as against Rs69 billion in the fiscal year 2018-19. The Rs134.8 billion refunds were in addition to Rs100 billion paid from the regular budget.

The massive shortfall in tax collection is going to hurt the country’s fiscal sustainability. In the fiscal year 2018-19, Pakistan’s public debt-to-gross domestic product (GDP) ratio deteriorated to 88%, which is now expected to worsen further to 92% due to the shortfall in tax revenues and higher expenditures.

The finance ministry has projected that the country’s fiscal deficit would be around 9.4% of the GDP due to a large revenue shortfall and increase in expenditures.

“We were on our way and we had 17% collection but as soon as Covid-19 came, it affected all the economies, so a direct consequence was that our target had to be revised to Rs3.9 trillion and we had a Rs1 trillion shortfall”, Prime Minister Imran Khan stated at the floor of the National Assembly on Tuesday.

Before Covid-19, the FBR was supposed to achieve 45% growth in revenues but its revenues were growing at a rate of 16.5%.

For the new fiscal year, the government has set the FBR’s target at Rs4.963 trillion. But on June 13th, Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh said that “I cannot say with confidence that it [Rs4.963 trillion target] can be achieved but we should make efforts”.

He went on to say that the provinces should make their budgets while keeping in mind the FBR’s past performance and difference between performance, projections and reality.