New steps bring less-than-estimated revenue
The taxation measures worth Rs1.4 trillion introduced in the budget did not yield desired results as the government collected an amount that was Rs348 billion less than the five-month estimate.
This indicates that any new mini-budget will not help to achieve the annual target.
Against the hopes of generating Rs491 billion from the new tax policy measures introduced in the budget, the collection was hardly Rs143 billion during the July-November period of the current fiscal year, according to an internal assessment of the Federal Board of Revenue (FBR).
The political leadership has also been briefed about the shortfall in tax collection. Internal figures indicate that the tax collection through the new measures was 71% of the estimate.
The poor response to the policy measures, mostly because of an economic slowdown, excessive optimism and weak enforcement, is also evident from the collection in the ongoing month.
The government had enforced Rs1.4 trillion worth of new tax measures through the current fiscal year's budget in order to achieve roughly the Rs13 trillion annual target. These taxes were imposed as part of the International Monetary Fund (IMF) programme.
The FBR had estimated that out of the Rs1.4 trillion, it would generate Rs491 billion during the July-November period. Its internal assessment showed that the impact of revenue measures was only Rs143 billion in five months.
The shortfall was faced in income tax, sales tax and federal excise duty collection and the lowest response was witnessed against the income tax measures.
The FBR's income tax collection through the new policy measures was Rs150 billion less than its five-month estimate. The collection from the real estate sector and traders went off the mark due to the overall economic slowdown and weak enforcement, sources said.
The FBR collected Rs47 billion worth of withholding tax on the sale and purchase of property, which was higher than the last fiscal year, but was far lower than the budget estimate.
Same was the case for the collection from filer and non-filer retailers, which was hardly Rs13 billion in five months. Tax collection under the Tajir Dost Scheme was just a couple of million rupees, underscoring the weak enforcement.
However, the salaried people paid Rs198 billion from July to November, which was higher by Rs72 billion than the same period of last year. Sources said that income tax collection from the salaried class was even Rs20 billion more than the government's expectation. The FBR is now contemplating reducing tax rates for tobacco, beverages and real estate sectors to boost revenue but it is not willing to consider such a proposal for the salaried class. Any proposal to provide relief to the already low-paying sectors will be taken up with the IMF during the first review talks.
The government is set to face a major revenue shortfall this month as the collection has so far reached Rs450 billion. Only 10 days are left during which the FBR is required to generate another Rs920 billion to achieve the monthly target.
The FBR has already missed its five-month tax receipt target by Rs341 billion and the shortfall is expected to widen further by the end of December. The IMF will assess December's tax collection before deciding on bringing a new tax-loaded budget. According to the FBR's assessment, the sales tax policy measures generated an amount which was Rs85 billion less than the estimate. It was mainly because of weak enforcement and economic slowdown.
The major impact is at the import stage as the government is not allowing normal import transactions due to the thin position of foreign exchange reserves.
There was also a major shortfall of Rs113 billion on account of collections related to the additional federal excise duty measures introduced in the budget.
The government had imposed a heavy duty on acetate – the filters being used in cigarette production. However, this led to an increase in smuggling, showing an extremely poor enforcement.
The government had also imposed 3% federal excise duty on the purchase of homes, which also did not help boost revenue.
However, the authorities believed that their collection because of increased compliance contributed Rs342 billion in five months, which was Rs223 billion more than the estimate. The impact was mainly on account of better filing of income tax returns that generated Rs145 billion in five months. But the tax collection on account of audits of taxpayers decreased by 16%.