Tax receipts rise at less than required pace

Revenue collection goes up 9% to Rs454 billion in July

ISLAMABAD:

The Federal Board of Revenue (FBR) exceeded the tax target and collected over Rs454 billion in July on the back of a healthy growth in income tax receipts whose share in total collection improved due to the direct taxes imposed in budget.

However, the increase in collection was slightly over 9%, which was significantly lower than the pace that the tax authorities ought to achieve to meet the annual target of Rs7.470 trillion.

During July, the FBR provisionally collected Rs454 billion, up by Rs38 billion or 9%, according to data compiled at the end of last working day of the month. The collection will marginally improve due to the clearance of goods at ports
today (Saturday).

For July, the tax machinery had set a target of Rs443 billion, which was equal to 6% of the annual target.

For the new fiscal year, the government has fixed the tax collection target at Rs7.470 trillion on the International Monetary Fund’s (IMF) demand, which will require about 22% growth. The target seems to be achievable given the high inflation rate.

In the last fiscal year, the FBR’s performance remained largely dependent on imports that contributed 51% to the total tax collection, which throughout the year camouflaged the weakness in the domestic sales tax collection that
remained negative.

However, there were two positive developments in the outgoing month. The share of imports in the total tax collection dropped to 47.5% due to the overall reduction in import bill.

Secondly, the share of income tax increased to 39%, which was in line with the annual requirement.

In the FY23 budget, the government has imposed over Rs1 trillion in additional taxes on account of petroleum levy, income tax, sales tax and federal excise duty. It has slapped 1% to 4% super tax on companies for an unlimited period.

Prime Minister Shehbaz Sharif promised that the super tax would be imposed for only one year but he has now backtracked from the promise. But the 10% super tax remains, for the time being, for one year only.

Provisional figures showed that the FBR collected Rs177 billion in income tax, up by Rs41 billion, or 30%. The collection was equal to 39% of the total taxes generated in July. The FBR exceeded the monthly income tax collection target by Rs20 billion.

A better performance by the Large Taxpayers Unit – Islamabad helped in exceeding the monthly income tax collection goal.

Out of Rs454 billion, the FBR collected Rs216 billion at the import stage on account of withholding taxes, sales tax on imports and
customs duty.

Its share was around 47.5%, as imports decreased massively due to various restrictions imposed by the State Bank of Pakistan and the federal government.

Due to the suppression of imports, the sales tax collection was also affected during the month under review. For the first time in recent months, the FBR’s sales tax collection showed a negative growth of 4%.

It collected around Rs185 billion in sales tax, down by Rs7 billion over the same month of last year. It also missed the monthly sales tax target by Rs6 billion.

The FBR collected around Rs58 billion in domestic sales tax compared with Rs66 billion in the previous year, a reduction of Rs8 billion, or around 12%.

The constant negative growth in domestic sales tax has challenged the traditional theory that revenue collection should increase proportionately to the nominal GDP growth rate.

Sales tax collection at the import stage stood at Rs127 billion, which was equal to last year’s collection.

Federal excise duty collection stood at nearly Rs27 billion, up Rs4 billion, or 18%. It exceeded the
monthly target. Custom duty collection remained slightly higher than last year and stood at Rs65 billion.

Published in The Express Tribune, July 30^th, 2022.

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