Revenue shortfall

Government revenues imploded in December, despite a strong start in the current fiscal year. The FBR barely hit three-quarters of its revenue target for the month, but the reasons make the nature of the loss much more complex — a large portion of the lost revenue was continuing decline in imports due to austerity measures. Meanwhile, the FBR projections also referenced the impending ‘super tax’, but this has still not been collected. For what it’s worth, collections were still about 23% higher than in December 2021.

However, while a one-month blip may not usually be a cause for concern, the steep drop does not bode well for what to expect in the rest of the fiscal year, because even after the super tax comes in, there is no reason to expect import-related tax revenues to rise, since measures to cut imports are not going away anytime soon. Meanwhile, the collection shortfall for the year to date has now reached Rs218 billion, or almost 6% of the half-year target of Rs3.65 trillion. Another indication of the extent of the cash crunch comes from several exporters’ claims that their refunds and rebates have still not been issued. The IMF is also expected to take note of the revenue shortfall, as the government is falling well short of its commitments to the international financial institution. In fact, some analysts are already blaming the revenue shortfall for the delay in the next review of the IMF loan programme.

Income tax collection appeared to be a somewhat brighter spot. Although the government missed its collection target by a nominal amount — under 2% for the fiscal year to date — income tax collection increased 62% in December and 48% for the half-year. But even here, the provisional FBR data shows the government’s failure to move away from dependence on indirect taxes, as the overall shortfall dwarfs the performance on indices related to direct tax revenues.

Published in The Express Tribune, January 3^rd, 2023.

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