The shortfall in tax collection has reached a record-breaking Rs433 billion during the first 11 months of the current fiscal year. This puts the Federal Board of Revenue (FBR) in an incredibly challenging position as it needs to collect Rs1.43 trillion in June alone to meet the annual target.
Provisional results indicate that the FBR has fallen significantly short of the 11-month revenue collection target of Rs6.64 trillion, managing to accumulate only Rs6.2 trillion, growing at a rate of 15.5% according to officials.
Consequently, despite the introduction of a second budget during the fiscal year and a record-breaking 36.4% inflation rate, the government is set to miss the annual tax collection target of Rs7.640 trillion by a considerable margin.
In May, the FBR failed to achieve its monthly collection target of Rs621 billion, falling short by Rs54 billion and ending the month with a collection of Rs567 billion. The monthly growth rate in collection stood at 14.5%.
To achieve the annual target of Rs7.640 trillion, the FBR now needs to collect an additional Rs1.44 trillion in June, requiring an average daily collection rate of Rs48 billion.
The shortfall in tax collection for the current fiscal year will have adverse consequences for the proposed revenue target of Rs9.2 trillion for the next fiscal year. The target might be further revised upwards if Pakistan follows the recommendations of the International Monetary Fund (IMF), according to sources.
To achieve the overall primary budget deficit target agreed upon with the IMF, the PML-N-led coalition government imposed a mini-budget of Rs170 billion on the public. However, just four months ago, the FBR had assured the IMF that the depreciation of the rupee would generate approximately Rs180 billion, aiding in meeting the annual target. This has not materialised, partly due to lower-than-expected imports.
Last Friday, the PM publicly expressed his displeasure with FBR Chairman Asim Ahmad’s performance, stating that he was “extremely angry” with him. The government has initiated a search for a new chairman of the FBR. There is also speculation about the possibility of appointing a chairman from the private sector or from the Pakistan Administrative Service (PAS).
During the current fiscal year, the government has imposed nearly Rs800 billion in additional taxes, including Rs170 billion implemented from February. Despite increasing the standard GST rate to 18% and raising the rate to 25% on numerous goods, the outdated tax machinery has failed to collect the due revenues.
The revenue collection of Rs6.2 trillion during the current fiscal year is Rs836 billion higher than the corresponding period of the previous fiscal year, representing a growth rate of only 15.5%. This pace of increase is less than half of the nominal GDP growth rate of 36%.
The overall collection of customs duty remained below the target for the 11th consecutive month, with the FBR collecting Rs828 billion during the July-May period. This amount was Rs62 billion less than the collection for the same period last year, as the government has restricted imports to preserve foreign exchange reserves. The decrease in imports has exposed the vulnerabilities in the FBR’s revenue collection methods, emphasising the need for a broader tax base.
Federal excise duty collection stood at Rs323 billion, a mere Rs34 billion or 12% increase from the previous fiscal year.
According to the Finance Ministry, a delegation from the Pakistan Tobacco Company (PTC) Ltd held a meeting with Finance Minister Ishaq Dar on Wednesday and requested rationalisation of FED rates to maintain the viability of the industry.
Published in The Express Tribune, June 1st, 2023.
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