The tax collection shortfall narrowed to Rs214 billion in the first seven months of current fiscal year after the Federal Board of Revenue (FBR) started reaping the bonanza of currency devaluation, which is now expected to boost the dwindling revenues by Rs180 billion by June.
FBR managed to collect Rs3.97 trillion in taxes in the July-January period of current fiscal year, falling short of the target by Rs214 billion, according to FBR officials. The gap was Rs218 billion till the end of December.
Hardly a week ago, the FBR feared that it would suffer another Rs40 billion tax shortfall in January as the appointment of Tariq Pasha, former FBR chairman, as special assistant to the PM on revenue was not helping either.
But the government’s decision to cave in to the International Monetary Fund (IMF)’s demand to let market determine the exchange rate proved to be a blessing for the struggling FBR. As a result, against the monthly budgetary target of Rs533 billion, it provisionally collected Rs537 billion.
FBR on Tuesday informed the IMF that due to currency devaluation, it would get a revenue boost of Rs180 billion during the remaining period of current fiscal year. Earlier, it was expecting an overall shortfall of Rs167 billion against the annual target of Rs7.470 trillion.
It told the IMF that it did not need any additional revenue measures. The IMF will discuss the FBR’s fresh work on Wednesday (today).
However, it does not mean that the government will not require a mini-budget as slippages in the power sector and extra expenditure will still need additional revenue measures.
Earlier, the FBR had worked out its revenue forecast based on the average exchange rate of Rs231, which has now settled around Rs265 to a dollar, giving it a major boost in tax collection.
A day after the government allowed the rupee value to be determined by market forces, the customs department collected Rs11 billion in a single day. This helped increase its monthly collection to Rs85 billion, which was still Rs10 billion less than the goal but better than previous expectations.
The collection of Rs537 billion in January 2023 was 23% more than the same month last year, according to a press statement. Overall, the FBR achieved 18% growth in tax collection during the July-January period, which was lower than the required growth rate and also far lower than the inflation rate.
FBR said that it issued refunds of Rs208 billion in the first seven months of current financial year as against Rs183 billion in the corresponding period of last year.
The overall collection of customs duty remained below target for the seventh consecutive month. FBR collected Rs552 billion in customs duty, which was Rs24 billion lower than last year.
Its collection in seven months was Rs86 billion less than the target, which the department now hopes to recover on the back of higher imports and higher dollar prices.
Income tax collection in seven months amounted to Rs1.74 trillion, up by Rs564 billion, or 48%. The collection exceeded the target by Rs15 billion.
The Sindh High Court last month struck down the super tax, which caused a Rs218 billion shortfall in the six-month target.
In January, the FBR collected Rs221 billion in income tax, exceeding the monthly target by Rs34 billion. It was also helped by the higher value of the dollar.
Sales tax collection amounted to Rs1.47 trillion in seven months, Rs17 billion less than the comparative period of last fiscal year. It is a major failure of the FBR, which has not been able to reap the benefit of 25% inflation. FBR lacks sales tax experts in its strong 21,000 workforce.
FBR missed the seven-month sales tax target by Rs166 billion. In January, the FBR pooled Rs204 billion in sales tax, missing the monthly target by Rs11 billion.
Federal excise duty collection stood at Rs190 billion, missing the seven-month target by Rs16 billion. The collection was higher by Rs19 billion compared with the revenues received in the same period of last fiscal year.
Published in The Express Tribune, February 1st, 2023.
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