FBR surpasses first quarter tax target

Number of return filers shrank 42% to just 1.8 million by end of original deadline

ISLAMABAD:

The Federal Board of Revenue (FBR) exceeded its first quarter revenue target and received Rs1.4 trillion but failed to expand the tax base, as the number of return filers dropped 42% to just 1.8 million till the statutory deadline.

Due to the failure to increase the number of tax return filers coupled with the collapse of information technology system on the last day, the FBR extended the deadline by 15 days from September 30, which was given in the Income Tax Ordinance.

“The FBR is pleased to extend the date of filing income tax returns for tax year 2021 by 15 days due to serious technical problems in the online return filing system (IRIS),” said a statement issued on Thursday.

The government had earlier promised to improve the FBR’s information technology system after the worst hacking last month.

By the end of statutory deadline, less than 1.8 million people had filed tax returns for tax year 2021, down 1.3 million or 42% compared to tax year 2020, according to an official of the FBR.

Apart from technical problems, the government has failed to instill confidence in taxpayers so that they could become filers of tax returns.

Before becoming the prime minister, Imran Khan used to believe that the government of Nawaz Sharif was a hurdle in the way of widening the tax base and improving the tax collection.

The FBR had hoped that it would receive at least 3.5 million income tax returns this year due to its aggressive campaign and facilitation of the business community. It was reluctant to give an extension without imposing some kind of monetary penalty but it was a political decision to extend the return filing deadline.

The revenue board was successful in maintaining a healthy momentum of increase in tax collection, largely aided by the rise in imports that provided more than half of the total tax revenues and also helped camouflage weaknesses in the economy.

Read Govt extends income tax return filing deadline

Against the target of Rs1.21 trillion, the FBR provisionally collected Rs1.397 trillion, exceeding the target by Rs187 billion, according to the bureau.

The collection was also significantly higher than the previous fiscal year, which will strengthen the government’s case before the International Monetary Fund (IMF).

The FBR collected 65.5% or Rs916 billion in indirect taxes – general sales tax, customs duty and federal excise duty, which are the three main sources of indirect taxes.

Similarly, Rs718 billion or over 51% of the total collection was at the import stage.

The spectacular performance at the outset of the year shows that the FBR is well on its way to achieve the assigned target of Rs5.829 trillion for FY22 despite the daunting challenges, compelling constraints posed by the Covid-19 pandemic and sporadic tax cuts announced by the government as relief and price stabilisation measures, said the FBR.

But reliance on indirect taxes has increased inflationary pressures at a time when the country is witnessing rupee depreciation.

The FBR collected Rs481 billion in income tax in the first quarter, up by Rs98 billion or 27% over the same period of last year. The collection was Rs52 billion higher than the target.

The share of income tax in total revenues stood at 34.5%, which has placed increased burden on people who have lower capacity to pay. The Pakistan Tehreek-e-Insaf (PTI) election manifesto had promised to increase the share of direct taxes to 45% from 38%.

The FBR showed 44% growth in sales tax collection in the July-September period due to heavy reliance on import taxes. It collected Rs624 billion in sales tax in three months, up by Rs190 billion.

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However, nearly the entire increase came at the import stage as the domestic sales tax collection remained almost flat.

The FBR collected Rs200 billion in domestic general sales tax (GST) compared with Rs198 billion last year, after adjusting for refunds.

Contrary to that, GST collection at the import stage stood at Rs424 billion in the first quarter of FY22 against Rs236 billion last year, an increase of Rs188 billion or 80%.

Total sales tax collection of Rs624 billion was Rs100 billion higher than the target thanks to collection at the import stage.

Federal excise duty collection amounted to Rs71 billion in three months, Rs13 billion or 22% more than the corresponding period of previous year.

Similarly, customs duty collection increased to Rs221 billion, higher by Rs67 billion or 44%.

The central bank has introduced 100% cash margin requirement for 114 more items to curb imports, which will have implications for the FBR revenues. However, it was the need of the hour after the government could not fix the structural fault lines of the economy in the past three years.

The net collection in September 2021 came in at Rs535 billion, registering an increase of 31% over Rs408 billion collected in September 2020, said the FBR.

Published in The Express Tribune, October 1^st, 2021.

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