Tax shortfall

A mini-budget looks inevitable thanks to the FBR which has failed to achieve its monthly revenue collection target for the fourth time within just five months of the ongoing fiscal year. The shortfall in tax collection for the July-November period has come to a staggering Rs356 billion, with the taxmen only managing to collect Rs4.28 trillion as against the targeted Rs4.64 trillion. The missed numbers have triggered buck passing. The tax authorities blame the elusive target on 'inaccurate' assessment made while setting the tax target for FY25. The finance ministry, on the other hand, believes the tax machinery is lacking in will to meet the mark despite being buoyed up with a Rs32 billion incentive package announced last month.

It, however, goes without saying that the Rs12.97 trillion tax target for the full fiscal year, 40% higher than the collection made in the previous fiscal, is too overambitious, specially when the government is pursuing macroeconomic stability amid fiscal tightening marked by huge cut in spending. Remember, a mere 6.6% of the targeted 26% revenue has been spent under the PSDP during the first five months this fiscal. It's simple arithmetic: if you go for fiscal tightening – by cutting down on spending – your tax collection is bound to fall. And that accounts for much of what has emerged as tax shortfall.

The unrealistic target, in fact, shows that the government was too desperate to win over the IMF to secure the $7 billion bailout deal. Per the government's calculation, the 40% additional revenue, which comes to Rs3.659 trillion, is to be achieved from three main factors: 3% GDP growth, 3.5% expansion in large-scale manufacturing and 16.9% increase in imports. Experts, however, estimate the real revenue collection to not exceed Rs12 trillion, something that anticipates a huge shortfall of more than Rs900 billion.

A mini-budget thus looms as the IMF assesses the half yearly collection a month from now. That the measures to make up for the tax shortfall and satisfy the global lender would force the already hard-up masses into further belt tightening is a given.