FBR misses tax target by Rs330b

Mini budget looms as six-month revenue collection rises at slower pace of 10%

ISLAMABAD:

The Federal Board of Revenue (FBR) has missed the first half year's reduced target by Rs330 billion, which is less than official estimates, helping to lower risks of a mini-budget that could hit the users of solar panels, mobile phones and bank account holders.

Against the original target, the shortfall was as high as Rs545 billion for the July-December period of the current fiscal year, according to the provisional figures. The collection, nonetheless, was better than the FBR's own expectations, as it had briefed the prime minister couple of weeks ago that the target could be missed by a margin of Rs564 billion.

The key contributing factor was Rs391 billion collections made on the last day of the month, as the banks were kept opened till 10pm in the hope of getting maximum possible revenues. The FBR also paid 47% less refund in December compared to a year ago. However, the monthly shortfall was Rs20 billion, which was much lower than the hits taken on the revenues in the previous months.

The six-month collection was higher by only 10% compared to the last fiscal year, a pace that is far lower than the needed growth rate of collecting nearly Rs14 trillion in revenues in this fiscal year.

Chairman FBR Rashid Langrial enjoys the support of the Prime Minister House, which thinks that despite missing the target, the bottom line was improving. According to the provisional figures, the FBR pooled Rs6.16 trillion during the July-December period, falling short of the downward target by Rs330 billion. It was also Rs545 billion less than the original target of Rs6.7 trillion for the same period.

During the last programme review, the International Monetary Fund (IMF) had cut the FBR's target by Rs214 billion to adjust the impact of lower than projected inflation and economic growth and the floods. Both sides had also agreed that in case the revenue shortfall kept widening, the government would bring a mini-budget of at least Rs200 billion in January. The chances of the mini budget still remain but these are now less due to relatively lower shortfall and a tight control on development expenditures.

The sources said that Pakistan had assured the IMF that it will take Rs200 billion worth of additional tax measures in January to compensate for any slippages in the budget surplus by increasing the income tax rates on landline and mobile phones and cash withdrawals from banks.

These agreed measures included increase in sales tax on solar panels and expanding the web of federal excise duty (FED) to confectioneries and biscuits. The government's back-up measure include increasing the withholding tax on cash withdrawals to 1.5%, an increase of almost 100%. The government currently charges 0.8% on cash withdrawals from a person whose name does not appear in the active taxpayers' list.

According to another back-up measure, Pakistan had informed the IMF that it may increase the withholding tax on landline phones from 10% to 12.5%, a surge of 25% in the tax burden on households having landline connection. It is expected to generate Rs20 billion annually.

In another regressive measure, which could hurt every individual, the government may increase the withholding tax on cellular calls from 15% to 17.5%. This is expected to generate an additional Rs24 billion every year, said the sources.

The government has agreed to increase the sales tax from 10% to 18%. Sources said that another proposal was to impose 16% FED on confectioneries and biscuits to raise Rs70 billion in revenues every year.

The details showed that as against the original target of Rs3.3 trillion, the FBR collected Rs3.03 trillion income tax, showing 9% growth in the collection. The sales tax collection amounted to Rs2.09 trillion, falling short of the target but still there was 10% increase.

Likewise, the federal excise duty collection remained at Rs400 billion with 11% increase over the last year. The custom duty collection fell short of the target and stayed at Rs642 billion, registering 8% increase over the last year.

Against the monthly original target of Rs1.56 trillion, the FBR collected Rs1.425 trillion in December. However, this collection was the result of paying 47% less refunds compared to a year ago. The FBR paid Rs38 billion refunds in December as against Rs72 billion a year ago. Meanwhile, exporters complained to Prime Minister Shehbaz Sharif on Wednesday against the FBR's decision to scrutinise their income tax returns. The Chairman of Pakistan Retail Business Council Ziad Bashir complained to the PM that the FBR's recent decision to scrutinise tax returns could "easily be misconstrued as an attempt to provoke friction between the business community and the elected leadership.

The FBR on Tuesday had issued instructions to field formations about scrutinising the tax returns of exporters on the suspicion that they understated their incomes. "I am directed to state that analysis carried out at the FBR Headquarter reveals that a significant number of exporters individuals, association of persons and companies have substantially reduced their declared taxable income for Tax Year 2025" after the taxation regime for export proceeds has been modified from final tax to minimum tax, according to the FBR's instructions.

These instructions showed that all field formations were directed to closely examine the declarations of major exporters falling within their respective jurisdictions to ascertain whether any abnormal reduction, inconsistency, or change in declaration patterns is evident after the said amendment. The field formations were further told to furnish a list of such exporters falling in the above category as per following, latest by 1st Jan, 2025. The FBR has sought a list of at least 70 exporters from field formations.

Bashir on Wednesday wrote to PM Sharif against the FBR's action.

"At a time when Pakistan's export sector is already under stress owing to some of the highest effective tax burdens, energy tariffs, interest rates and financing costs in the region, the issuance of such broad, open-ended scrutiny instructions sends a deeply troubling signal to the business community," said Bashir. "This could easily be misconstrued as an attempt to provoke friction between the business community and the elected leadership, something that would serve no national interest," according to Bashir.

The council chairman further stated that exporters are currently operating in an environment marked by declining global demand, intense regional competition and structurally higher domestic costs. He said that the manner in which the current instructions have been framed effectively creates unrestricted discretionary space at the field level.

"If this trajectory continues, one is compelled to ask whether the system is inadvertently or otherwise signalling that exporters should simply wind up their businesses," he added. However, the FBR management said that exporters would not be targeted by any means and would monitor the cases that would be selected to avoid any undue hardships to them.