FBR collects 18% more yet misses target

ISLAMABAD:

The Federal Board of Revenue (FBR) has collected Rs4.725 trillion in taxes in the last fiscal year at a healthy growth rate of 18%, which is better than expectations but lower than the original unrealistic tax target.

Unlike in the past when it used to take huge advances and block refunds, this time the machinery did not use arm-twisting measures and instead relied on enforcement tools that helped it still to show double-digit growth.

During fiscal year 2020-21 that ended on Wednesday, the FBR collected Rs4.725 trillion – up by Rs727 billion or 18% over the collection in the preceding year, said the provisional figures compiled by the FBR.

However, the collection fell short by Rs238 billion against the original target of Rs4.963 trillion set at the start of the fiscal year.

During his post budget press conference, former finance minister Dr Abdul Hafeez Shaikh had appealed to the provinces that they should make their budgets on realistic assumptions as the Rs4.963 trillion target might not be achieved.

It was the third consecutive year that the FBR missed the original target due to setting targets under assumptions that were beyond the FBR’s control. Cumulatively, the PTI government collected Rs2.4 trillion less than the targets it set during its first three years in power.

Setting unrealistic targets also costs the cash-starved federal government since Balochistan gets its 9.09% share in the federal divisible pool on the basis of the original target instead of the actual collection.

All the three provinces will get their shares on the basis of Rs4.725 trillion and Balochistan will get on the basis of Rs4.963 trillion.

Independent economists and tax experts had been predicting that against the original target of Rs4.963 trillion, the FBR would generate Rs4.5 trillion to Rs4.6 trillion. But 18% growth in revenues has remained better than these expectations.

“The last fiscal year remained phenomenal as the FBR had remained successful in clearing all the income tax and sales tax refunds claims that were filed within the fiscal year 2020-21,” said FBR Nember Inland Revenue Operations Dr Mohammad Ashfaq.

Ashfaq maintained that only previous fiscal years (2007 to 2019) refunds were pending.

In fiscal year 2020-21, the FBR had paid Rs251 billion in refunds, which were 85% higher than the preceding year. These include Rs209 billion sales tax refunds.

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Due to release of refunds, the companies’ working capital requirements were reduced, which helped them to finance their operations without taking loans, said member operations.

He said in the past the refunds were used as a tool to increase collection “but we can say with confidence that no sales tax refund is pending in the FBR’s system that pertains to just ended fiscal year”.

“The Rs4.725 trillion is clean money and neither the FBR took advances nor it blocked taxpayers’ refunds,'' Dr Ashfaq said. “There were another Rs75 billion refunds that had been adjusted against the demand.”

Due to reliance on post-refund audits, the FBR has also been able to neutralize Rs114 billion refunds’ claims, which gave a signal to the exporters that where the FBR was active in giving refunds, it was also vigilant on bogus refund claims, said the member operations.

Ashfaq said the FBR’s strategy to shift 350 big cases to the large tax offices from small field formations would help get due taxes from these individuals. It is for the first time that taxation policies have helped strengthen people's confidence in the state, he added.

However, all was not well on the taxation front due to increasing collection at the import stage and growing reliance on indirect taxes, which remained the two distinctive features of the FBR’s revenue performance in the last fiscal year.

The Indirect taxes have also contributed to higher prices, including those of sugar and edible oil.

Tax-wise collection

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 major shortfall was on the income tax front, where the collection fell short of the original target by Rs322 billion, further distorting the share of direct and inflationary indirect taxes.

The FBR pooled Rs1.72 trillion in income tax in the last fiscal year, which was higher by Rs191 billion or 12.5% over the same period of the last fiscal year, according to the provisional results.

However, the tax machinery could not achieve its original income tax target by a margin of Rs322 billion. The income tax collection was 36.4% of the total collection and far less than the PTI’s goal of increasing it to 45%.

Under the head of sales tax, the FBR collected Rs1.98 trillion that was higher by Rs384 billion, showing a growth of 24%. The FBR exceeded its sales tax collection target by Rs61 billion. Out of the total sales tax collection, about 58% was collected at the import stage.

The FBR also exceeded its customs duties target by Rs102 billion and collected Rs742 billion with a growth rate of 20%. The FBR collected Rs284 billion on account of federal excise duties – up by 10%. But it missed the federal excise duty target by Rs77 billion.

Target for this year

The FBR now needs to collect Rs1.1 trillion more in the new fiscal year at a growth rate of 23.4% to achieve the target of Rs5.829 trillion.

Like the last fiscal year, the FBR’s new target is also unrealistic and there is a gap of roughly Rs350 billion between what the FBR possibly can collect and the target assigned to it.