The shortfall in tax receipts widened to a whopping Rs400 billion as the Federal Board of Revenue (FBR) could collect only Rs5.62 trillion in the first 10 months of current fiscal year despite announcement of a mini-budget and steep currency devaluation that boosted revenues.
Provisional results till the close of working hours on Friday showed that the FBR missed the 10-month (July-April) revenue collection target of Rs6.02 trillion with a wide margin of over Rs400 billion.
The gap is so huge that it cannot be bridged in the remaining two months of current fiscal year. The FBR will also end up missing the annual target of Rs7.640 trillion at this pace of tax collection.
It also fell short of the monthly target of Rs586 billion for April with a gap of Rs123 billion and registered a negative growth of nearly 4%. It should be a matter of grave concern for the government, particularly at a time of 36% inflation and due to the sinking value of the rupee, which is boosting tax collection at the import stage.
Tax authorities still hope they can fetch at least Rs20 billion more on Saturday and Sunday, which are otherwise official holidays.
The FBR has pleaded the central bank to ask commercial banks to remain open in the hope of getting a few billion rupees. Overall, it will not have any major impact.
Now, the FBR needs to collect over Rs2.02 trillion in the remaining two months of FY23 at an average of Rs33 billion per day to achieve the annual target of Rs7.640 trillion. The average daily collection in 10 months was nearly Rs19 billion.
The PML-N led coalition government has introduced a mini-budget of Rs170 billion to achieve the primary deficit target agreed with the International Monetary Fund (IMF). Just three months ago, the FBR had informed the IMF that rupee devaluation would give a bounty of roughly Rs180 billion, which would help achieve the goal.
So far, the government has imposed nearly Rs800 billion in additional taxes during the current fiscal year.
At the time of making the budget in June last year, the FBR had taken the inflation rate of 11.5%, which is currently 36%. All this did not prove sufficient to achieve the tax targets.
The shortfall will result in more borrowing, which in turn will squeeze the government’s budget space due to higher interest costs.
Tax authorities had hoped that the government would allow monthly imports up to $5.1 billion but actual imports remained lower.
Nonetheless, it does not provide a valid reason for missing the target, as taxmen have developed a habit of getting effortless revenues at the import stage or through withholding taxes.
The government has increased the standard general sales tax (GST) rate to 18% besides increasing it to 25% on dozens of goods. This too has proved insufficient.
According to an understanding reached with the IMF, in case of a shortfall in tax revenue, the government will make adjustments in expenses or levy more taxes to cover the gap.
Slowdown in imports and economic growth has hurt the FBR’s revenues, which for years had been relying on imports.
The collection of Rs5.62 trillion in 10 months of current fiscal year was Rs762 billion more than the same period of last year, showing a growth of 16%, but it was less than half of the nominal GDP growth of 36%.
Collection of customs duty remained below target for the tenth consecutive month. The FBR received Rs750 billion in customs duty during the July-April period, which was Rs180 billion less than the target.
The customs duty collection was also lower by nearly Rs42 billion from last year’s receipts.
The FBR needs to shift away from its model of collecting maximum taxes on imports and through withholding taxes. In April alone, the customs duty collection stood below the target by Rs45 billion.
Income tax collection in the first 10 months of FY23 came in at Rs2.5 trillion, up by Rs758 billion, or 44%, the only success story in the long list of failures.
The 10-month collection exceeded the target by Rs134 billion. In April, the FBR got Rs193 billion in income tax, exceeding the target by Rs22 billion.
Sales tax was another weak area as its collection amounted to nearly Rs2.1 trillion in 10 months, which was Rs285 billion less than the target. It was a major failure as the FBR was unable to reap the benefit of over 36% inflation.
Sales tax collection at the import stage constituted nearly 64% of the total sales tax collection. The FBR received Rs1.33 trillion in sales tax at the import stage out of the total of Rs2.1 trillion.
Ten-month GST collection was a mere Rs19 billion more than the last fiscal year. In April, the FBR pooled Rs183 billion in sales tax, missing the target by Rs80 billion despite an increase in GST rate.
Federal excise duty (FED) collection stood at Rs281 billion, missing the goal by Rs71 billion despite an increase in FED on cigarettes and beverages.
FED collection was higher by Rs24 billion compared with the same period of last fiscal year. In April alone, the FED receipts remained at just Rs36 billion - Rs21 billion less than the target.
Published in The Express Tribune, April 29th, 2023.
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