FBR misses target by Rs864b

Tax collectors need Rs91.6b per day in June to salvage the year

ISLAMABAD:

The Federal Board of Revenue (FBR) has missed its target by a wide margin of Rs864 billion, as the government's tax plan for the new budget may largely revolve around tweaking rates that can burden the existing taxpayers, except traders.

Among the proposals for the new fiscal year are increasing withholding taxes on import of certain goods, tweaking with the income tax rates of wholesale sector, charging sales tax on fast moving goods at the market price and collecting sales tax on plug-in hybrid vehicles at 18% against the existing low rates of 8.5% and 12.75%.

The traders' scheme could only be an exception where the government plans to impose 1% tax on small traders having annual turnover of Rs200 million. The 20% windfall gain tax on the oil sector companies is also part of the proposals that are being evaluated to show the International Monetary Fund (IMF) that the next year's target of Rs15.264 trillion is achievable.

The FBR is failing in achieving its monthly targets for this fiscal year, despite taking additional revenue measures in June last year and taking advantage of higher than targeted inflation rate.

According to provisional results, the FBR bagged Rs11.232 trillion in taxes during the July-May period of this fiscal year. The tax machinery fell behind the goal by a wide margin of Rs864 billion.

The tax machinery now needs Rs2.75 trillion in June alone, at the rate of Rs91.6 billion per day to achieve the downward revised target of Rs13.98 trillion. The original target for this fiscal year was Rs14.130 trillion.

There was hardly a 10% increase in collection during the first 11 months of this fiscal year compared with a year ago. The 10% growth rate was even lower than the nominal economic growth rate of 14%. The 11-month downward revised target was Rs12.01 trillion.

The tax machinery also missed the May tax collection target by a margin of Rs184 billion. Against the monthly target of Rs1.150 trillion, the FBR collected Rs966 billion in May. The increase in the monthly collection was 3%, or Rs23 billion.

The monthly target is compared with the targets adjusted in the light of downward revision in the annual goal by the FBR a few months ago.

FBR member operations confirmed that the monthly shortfall was Rs184 billion.

The FBR cleared Rs551 billion worth of refunds, including Rs50 billion in May. The amount was Rs84 billion higher than last year.

The government is offsetting the tax shortfall with the increase in petroleum levy rates and by drastically reducing the development spending. This is done to achieve the overall primary budget surplus target agreed with the IMF, but the policy is giving an artificial sense of fiscal stability.

Details showed that the FBR collected Rs5.54 trillion worth of income tax in the July-May period of this fiscal year, missing the goal by a margin of Rs261 billion. The receipts were 13% higher than last year. The amount is inclusive of super tax that the FBR recovered after the court ruled in its favour this year.

Sales tax collection amounted to Rs3.78 trillion, behind the target by a huge margin of Rs457 billion. It was higher by 7.8% over last year.

Federal excise duty collection reached Rs745 billion, which was 15% higher than last fiscal year. The FBR missed the excise duty collection target by a margin of Rs31 billion. Customs duty collection fell short of the target by Rs116 billion and amounted to Rs1.18 trillion. The increase in customs duty receipts was hardly 2% despite an increase in the import bill.

The sources said that as part of commitments with the IMF to take net additional revenue measures equal to Rs215 billion, the government was in the process of narrowing down the proposals. They added the measures included some changes in the income tax schedules, ninth that deals with wholesalers and 12th schedule of imports.

They added that income tax rates charged from wholesalers might be increased in the budget, subject to the final endorsement by the government. These taxes are charged through the commercial electricity bills.

Currently, where turnover does not exceed Rs50 million, the rate is 0.2%; for Rs250 million annual sales, the rate is 0.15%; and where turnover exceeds Rs250 million, the rate is 0.1%. The sources said that these rates may be upward revised but the final approval was pending.

Likewise, the government also charges low minimum turnover tax rates from certain categories of businesses that can also be upward adjusted. The withholding taxes on industrial imports can also be doubled in certain cases, the sources added. A major change could be an increase in the reduced sales tax rates on hybrid electric vehicles. The current reduced rates expire on June 30th and so far the government does not have a plan to extend the concession to the next fiscal year.

The government charges 8.5% sales tax on 1,800cc hybrid vehicles and for 1,801cc to 2,500cc the rate is 12.75%.