Indirect taxes drive FBR revenues

The tax collection body maintained a steady momentum and received Rs3.78 trillion in taxes in first 10 months of current fiscal year but its dependence on indirect taxes further increased to 64% of the total receipts.

Provisional results for July-April showed that the Federal Board of Revenue (FBR) collected Rs143 billion more than its revised target. The collection was almost equally made at the import stage where nearly one out of every two rupees was collected.

The FBR collected Rs3.78 trillion in the first 10 months of current fiscal year as against Rs3.32 trillion in the same period of last fiscal year, registering a growth rate of nearly 14%, according to the provisional results.

The collection was Rs460 billion higher as compared to the same period of last fiscal year.

The FBR managed to exceed the sales tax and customs duty collection targets, but missed the targets of income tax and federal excise duty.

Read: FBR exceeds tax collection target

The increasing collection at the import stage and growing reliance on indirect taxes remained the two distinctive features of the FBR’s revenue performance in the first 10 months of current fiscal year. Indirect taxes have also contributed to higher prices, including those of sugar and edible oil.

Out of Rs3.78 trillion, an amount of Rs1.72 trillion was generated at the import stage on account of income tax, sales tax and customs duty. This was equal to 46% of the total taxes pooled by the FBR in the current fiscal year.

The 10-month collection was Rs143 billion more than its target of around Rs3.64 trillion. However, the Rs3.78 trillion collection is on the basis of downward revised annual target of Rs4.7 trillion. Parliament had approved Rs4.963 trillion tax collection target for the FBR.

The FBR also paid Rs195 billion in tax refunds as compared to Rs118 billion paid last year. The government had withdrawn the zero-rating facility for the export-oriented sectors, which became a reason for the higher share of indirect taxes and repayment of refunds.

Tax-wise collection

The FBR pooled Rs1.36 trillion in income tax in 10 months, which was higher by Rs100 billion or 8% over the same period of the last fiscal year, according to the provisional results. However, the tax machinery failed to achieve its target by a margin of Rs42 billion.

The income tax collection was just 36% of the total collection and far less than the Pakistan Tehreek-e-Insaf’s (PTI) goal of increasing it to 45%. About 13% of the income tax was also collected at the import stage in shape of withholding taxes on various imported goods.

Under the head of sales tax, the FBR collected Rs1.6 trillion, showing a growth of 11.2%. The FBR exceeded its 10-month sales tax collection target by Rs109 billion.

Out of the total sales tax collection, as much as 58.1% was collected at the import stage.

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The growing reliance on indirect taxes, which is also an easy source of collection, is hurting the poor the most. The sources said that Prime Minister Imran Khan had also asked the FBR to reduce its reliance on indirect taxes.

By reducing and rationalizing the taxes on the fuel used for electricity generation and the consumer bills, the government can avoid further increase in tariffs, said Special Assistant to Prime Minister on Energy Tabish Gohar.

The FBR collects sales tax on the basis of 100% billed amount while the actual collection of bills remains around 92%.

The FBR also exceeded its customs duties target by Rs99 billion and collected Rs606 billion with a growth rate of 12.5%. During the last financial year 2019-20, an amount of Rs535 billion had been collected as customs duty in the first 10 months.

Overall Pakistan Customs collected Rs1.72 trillion at the import stage under the heads of customs duty, sales tax, withholding tax and federal excise duty, which is equal to 46% of the total FBR’s collection.

The FBR collected Rs223 billion on account of federal excise duties - up by 8%. But it missed the 10-month target by Rs18 billion.