Despite slapping extra taxes, FBR misses target by Rs496b
photo: file
The federal government has missed the annual tax target by Rs496 billion and collected Rs7.15 trillion in the outgoing fiscal year due to a steep decline in imports and slowdown of the economy, underscoring the need for a drastic shift in the obsolete taxation system.
By the end of last working day of fiscal year 2022-23, the Federal Board of Revenue (FBR) provisionally collected Rs7.144 trillion in taxes against the target of Rs7.640 trillion. The target was missed by Rs496 billion despite the imposition of nearly Rs800 billion in additional taxes, including a mini-budget introduced in February this year.
Out of four taxes, namely income tax, sales tax, federal excise duty and customs duty, the FBR met only the income tax collection target.
It could be able to achieve only 19% growth in tax collection during the outgoing fiscal year. Against the collection of slightly over Rs6 trillion in the last fiscal year, the tax receipts in FY23 were higher by Rs1.126 trillion.
It was not a good increase given the fact that there were heavy taxes on the people and companies.
Pakistan’s economy grew 0.3% in the current fiscal year but inflation skyrocketed to 38%. The tax collection suffered because of exemption from sales tax on petroleum products, against which the FBR had received around Rs260 billion last year, said a senior revenue board official responsible for its field operations. In addition, the FBR received Rs80 billion on crude oil imports in the last fiscal year, he added.
It missed June’s target as well but generated taxes of Rs933 billion, which was a monthly record. The monthly growth was 44% but it took heavy advances, including those of sales tax.
The shortfall during the outgoing fiscal year will also have implications for next fiscal year’s revenue target of Rs9.415 trillion.
The PML-N led coalition government has forced a mini-budget of Rs170 billion on the people to achieve the primary budget deficit target agreed with the International Monetary Fund (IMF).
Just five months ago, the FBR told the IMF that rupee devaluation would give a bounty of roughly Rs180 billion, which would help achieve the annual target. But it did not happen, partially because of less-than-expected imports.
So far, the government has imposed nearly Rs800 billion in additional taxes during the current fiscal year.
It increased the standard GST rate to 18% besides increasing the rate to 25% on dozens of goods. This too proved insufficient for the outdated tax machinery to collect the due revenue.
The slowdown in imports and economic growth has hit the FBR’s revenues, which needs to shift from the import-dependent revenue collection model. Last year, a lot of revenue was collected on the imported vehicles, CKD kits of vehicles, home appliances and mobile phones, said a senior Customs official.
However, he added, this year their imports were initially restricted through a ban and then through the imposition of high regulatory duties and finally by the State Bank’s policy of not opening Letters of Credit (LC).
During the outgoing fiscal year, imports remained slightly above $55 billion as of Monday, down $23.3 billion, or 30%, compared to last year.
However, the dutiable imports dropped to just $44.4 billion, or 34% in dollar terms. Even in rupee terms, there was a 10% reduction in the dutiable imports, according to FBR’s officials. The overall collection of customs duty remained below target by Rs224 billion during the outgoing fiscal year. The FBR collected Rs926 billion in customs duty, which was also Rs56 billion less than last year. Income tax collection amounted to Rs3.26 trillion, up Rs1.066 trillion, or 49%, the only success story. The income tax collection was Rs236 billion more than the annual target.
Sales tax remained another weak area as it amounted to nearly Rs2.58 trillion, only Rs65 billion more than the last fiscal year. It is a major failure as the FBR was unable to reap benefits of the prevailing 38% inflation.
GST collection was a mere 3% more than the last fiscal year. The FBR missed the annual sales tax target by Rs395 billion. Federal excise duty collection stood at Rs370 billion, only Rs50 billion, or 16%, more than the last fiscal year. The FBR missed the annual excise duty collection target by Rs114 billion.
Published in The Express Tribune, June 28th, 2023.
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