The Federal Board of Revenue (FBR) has so far collected Rs4.17 trillion in taxes, leaving it with a gigantic task of pooling an unprecedented Rs790 billion in the last month of current fiscal year to achieve the annual target.
During the July-May period of the outgoing fiscal year, the FBR’s tax collection increased at a pace of 17.4% on a low base in the last quarter of the previous fiscal year. However, some key indicators like share of direct taxes in the total taxes and effective tax rate against the import value have deteriorated, showed the official statistics.
Provisional results for July-May showed that the FBR collected Rs4.167 trillion - up by Rs618 billion or 17.4%. The collection fell short by Rs61 billion against the original target of Rs4.22 trillion set at the start of the fiscal year.
The FBR has crossed the Rs4-trillion collection mark in its fourth attempt, including two made earlier during the tenure of the government of Prime Minister Imran Khan. As per FBR’s own plan, the Rs4-trillion mark should have been crossed in May 2018 - two months before the PTI came into power.
The FBR now needs to collect Rs790 billion in June at a growth rate of 71% to achieve the annual target that became the base for setting the other budgetary targets and the share of provinces in the National Finance Commission.
During April-June period of the last fiscal year, the economy had come to a standstill due to restrictions imposed to stop the spread of Covid-19. This caused negative 16% growth in the last fiscal year, which is now helping the FBR attain double-digit growth in this fiscal year.
This is evident from May’s collection. The FBR’s provisional results showed that it collected Rs385 billion in May this year, which was up by 68% over May last year due to closure of the economy.
Anticipating the shortfall, the International Monetary Fund (IMF) has downward revised its projections for the FBR collection to nearly Rs4.7 trillion for the current fiscal year.
Some of the key indicators have further deteriorated, suggesting that the taxmen or the government had very little role in the tax collection. The share of direct taxes in total tax collection has further decreased to just 35.3% that a year ago was 37.2%.
Similarly, the effective tax rate against the import value dropped to 23.9% as of end April this year, which at the end of the Pakistan Muslim League-Nawaz (PML-N) tenure was 25.1%, showed the FBR data. The collection was almost equally made at the import stage where nearly one out of every two rupees was collected.
One reason for decreasing effective rate at import is reduction in import duties to facilitate the industrial production.
The increasing collection at the import stage and growing reliance on indirect taxes remain the two distinctive features of the FBR’s revenue performance in the first 11 months of current fiscal year.
The share of the withholding taxes has also jumped to nearly 70% at the end of the last fiscal year. The income tax collected on demand by the FBR was mere Rs42 billion for fiscal year 2019-20 that at the end of the PML-N tenure was also very low at Rs76 billion.
Indirect taxes have also contributed to higher prices, including those of sugar and edible oil.
The FBR managed to exceed the sales tax and customs duty collection targets, but again missed the targets of income tax and federal excise duty.
The FBR pooled Rs1.472 trillion in income tax in 11 months, which was higher by Rs153 billion or 11.5% over the same period of the last fiscal year, according to the provisional results. However, the tax machinery failed to achieve its original income tax target by a margin of Rs193 billion. The income tax collection was just 35.3% of the total collection and far less than the Pakistan Tehreek-e-Insaf’s (PTI) goal of increasing it to 45%.
Under the head of sales tax, the FBR collected Rs1.77 trillion, showing a growth of 23%. The FBR exceeded its 11-month sales tax collection target by Rs87 billion. Out of the total sales tax collection, about 58% was collected at the import stage.
The growing reliance on indirect taxes, which is also an easy source of collection, is hurting the poor most.
The FBR also exceeded its customs duties target by Rs107 billion and collected Rs672 billion with a growth rate of 18%. During the last financial year 2019-20, an amount of Rs561 billion had been collected as customs duty in the first 11 months.
Overall, Pakistan Customs collected Rs1.925 trillion at the import stage under the heads of customs duty, sales tax, withholding tax and federal excise duty, which is equal to 46.2% of the total FBR’s collection.
The FBR collected Rs252 billion on account of federal excise duties - up by 11.5%. But it missed the 11-month target by Rs57 billion.
Published in The Express Tribune, June 1st, 2021.