‘Inflated’ tax revenue

The FBR has seen revenue rise by a whopping 30% in the year to date, which may look impressive, until a closer inspection shows that almost the entire increase was attributable to inflation. Tax refunds also increased at a similar rate — 28% — which underscores the impact of inflation. However, some news reports also credit increased scrutiny of FBR collection with improving the bureau’s performance. The FBR performance report comes in the wake of several changes to the bureau’s administrative structure which was introduced by the caretaker government to improve efficiency, and which Prime Minister Shehbaz Sharif seems to have also thrown his weight behind.

Other factors include a steady increase in imports, which has led to a corresponding increase in import duties. However, the easing of some of the most severe import restrictions from the PDM government-era has also led to less collection as a percentage of import value, meaning the rate of increase has slowed again. One positive amid the economic upheaval is that the share of revenue from different sources has become more balanced — import taxes represent 36% of revenue this year, compared to over 50% just three years ago.

Meanwhile, sales tax revenue increased by 19% — the smaller increase is being blamed on inflation making several tax-exempt expenses, such as vegetables, so expensive that people have less money to spend on taxable goods and services. Another bit of silver lining was income tax revenue. Though the figure to date is still abysmally low overall, it has risen 40% on the back of increased collection from lucrative industries such as finance, energy, food, textiles and services.

But despite the positives, a lot of work needs to be done if revenues are going to increase at a pace that allows the government to raise funding for development and essential services to the required levels. With inflation control still being the priority issue for the new government, it is debatable whether the government is in a position to also overhaul tax policies.

Published in The Express Tribune, March 8^th, 2024.

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