Tax collection

The FBR has had a mixed year. On the one hand, it has collected Rs4.17 trillion in the year to date, breaking the Rs4 trillion mark for the first time in history. Targets of above Rs4 trillion have been set and missed during the previous three years, dating back to the final year of the PML-N government. While the PTI and Prime Minister Imran Khan have every right to count the achievement as a feather in their proverbial caps, we must remind that, on the other hand, the collection is still well short of the full-year target.

By the FBR’s own measure, it should have collected another Rs61 billion by the end of May. That may not seem like a lot compared to the total collection, but it does add pressure during the final month of the fiscal year. The taxman would have to collect a record Rs790 billion in June to meet that target. Even the IMF’s revised estimate of Rs4.7 trillion will take some doing.

The shortfall is partly because of some holes in the system. According to official statistics, the share of direct taxes in total taxes has fallen, which means that the overreliance on indirect taxes continues. The effective tax rate against import value also fell. However, this is partly attributable to a reduction in import duties overall as part of the government’s efforts to support investment in industries. Unfortunately, the same cannot be said for the increased reliance on indirect taxes, which only harm poor consumers.

Meanwhile, income tax made up just 35% of total collection so far, down from 37% last year and well below the 45% target set by the government. Indirect taxes share significant blame for the increasing prices of staple food items such as cooking oil and sugar. Another cause for concern is that the shortfall comes despite the government’s claim of 3.94% economic growth, almost twice its earlier target of 2.1%. This suggests that the additional economic activity was not adding to the government’s coffers. There is still a need for several reforms at structural and policy levels if the FBR is to meet next year’s IMF target of Rs6 trillion without relying on indirect taxes.

Published in The Express Tribune, June 3^rd, 2021.

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