Mini-budget fails to help narrow tax shortfall

FBR falls short of target by Rs212b in Jul-Feb FY23

ISLAMABAD:

Despite enforcing a mini-budget and steep currency devaluation, the Federal Board of Revenue (FBR) could not narrow down the tax shortfall that came in at around Rs212 billion in the first eight months of current fiscal year, though there was an ‘unusual’ spike in collection on the last day.

The FBR could not even touch the Rs4.5-trillion mark for the July-February period of current fiscal year, facing a gigantic task of collecting Rs3.2 trillion in the remaining four months.

After the imposition of mini-budget, the new annual tax target is Rs7.640 trillion, up by Rs170 billion. The FBR was supposed to adjust its monthly target too, but it was not revised upwards.

It did not change the old monthly target of Rs527 billion despite a massive increase in federal excise duty and 1% increase in general sales tax (GST).

Yet, it had to resort to taking advances from banks to meet the monthly goal, according to sources.

Pakistan had assured the International Monetary Fund (IMF) that currency devaluation would help collect an additional Rs180 billion in the current fiscal year, but February numbers may put the country under some additional IMF pressure.

The FBR managed to collect Rs4.49 trillion in taxes in July-February FY23, falling short of the target by Rs212 billion, according to FBR officials.

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It had assured the IMF that it would recover the shortfall during the remaining period of current fiscal year. But it did not happen in February despite some collection on account of super tax on the instruction of Supreme Court.

During the eight months, the FBR collected Rs4.49 trillion on average daily rate of Rs18.7 billion. The collection increased by Rs671 billion, higher by 18% but lower than the prevailing inflation.

To collect another Rs3.15 trillion from March to June, the FBR needs to enhance the average daily collection to Rs26 billion.

There was an unusual collection of Rs68 billion on the last day of the month, a figure that was 128% more than the same day of last year. Highly placed sources told The Express Tribune that advances were obtained from banks in Lahore and Karachi.

Karachi Large Taxpayer Office chief commissioner did not reply when asked whether he took huge advances to bridge the shortfall.

Income tax collection on the last day was Rs39.9 billion, which was unparalleled, thus deepening suspicion of resorting to the old habit of taking advances.

FBR’s former chairman Dr Ashfaq Ahmad had discontinued the illegal practice of taking advances.

An official at the FBR headquarters said that the lowest advance tax was received from banks in February. He said that one reason behind the unusual spike could be that the entire effort for bridging the shortfall was made on the last day.

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The Large Taxpayer Office Islamabad also made recoveries against demand, which too contributed to the increase in daily collection of income tax.

The FBR is expected to give a company-wise breakdown of Rs40 billion income tax collection to clear the suspicion.

The overall collection of customs duty remained below target for the eighth consecutive month. The FBR collected Rs626 billion in customs duty, which was Rs101 billion lower than the target.

Income tax collection in eight months amounted to Rs1.96 trillion, up by Rs629 billion, or 47%. The collection exceeded the target by Rs47 billion while it has to be explained in the light of advances.

In February, the FBR collected Rs212 billion in income tax, exceeding the target by Rs34 billion, helped by the higher value of dollar.

Besides, sales tax collection amounted to Rs1.7 trillion in eight months, Rs138 billion less than the target. In a major failure, the FBR was not able to reap the benefit of 28-30% inflation.

The eight-month collection was mere Rs26 billion more than the last fiscal year, putting a serious question mark over the efficiency of the revenue board.

In February, the FBR pooled Rs213 billion in sales taxes, missing the target by Rs15 billion despite increase in the GST rate.

Federal excise duty collection stood at Rs216 billion, missing the target by Rs23 billion despite increase in the FED rate on cigarettes and beverages. The collection was higher by Rs19 billion, compared with the revenues received in the same period of last fiscal year.