Despite blocking billions of rupees in refunds, the central government has missed the annual tax collection target by a wide margin of Rs80-85 billion, which will widen the gap between income and expenditure, according to initial reports.
Against the annual target of Rs1.952 trillion, the Federal Board of Revenue (FBR) collected Rs1.865 trillion by Saturday evening, showing a gap of Rs87 billion, a senior FBR official told The Express Tribune.
“Banks will remain open until midnight to receive taxes and the FBR expects to bag an additional Rs5 billion to Rs10 billion,” he added.
The collection is Rs307 billion or 19.7% higher than last year’s Rs1.558 trillion. According to experts, the higher collection was due to double-digit inflation and increase in oil prices with little role of tax authorities in enhancing state revenues.
FBR Chairman Mumtaz Haider Rizvi has already announced that he will resign from his post if the tax target was missed by even Rs1 billion.
The missing of the target, which is for the fourth consecutive year, will add 0.4 percentage points to the already high budget deficit – the gap between government’s income and expenditure. The deficit is feared to surge to 8.5% of total national income compared to the original target of 4%. Final figures of the budget gap will be released after July 15.
In an attempt to reduce the shortfall, the FBR and the finance ministry were showing the sales tax collection made by the Sindh Revenue Board (SRB) in federal taxes, said sources.
At a time when the FBR has missed the target, the SRB in its first year has managed to cross the target of Rs25 billion for tax on services.
By adding Rs25 billion, the FBR is putting its provisional collection at Rs1.890 trillion. However, according to tax and constitutional experts, making a province’s tax collection part of the federal revenues is unconstitutional.
“Showing SRB’s taxes as federal tax revenues is double counting, which will artificially inflate the national tax-to-GDP ratio,” said Dr Ikramul Haq, a tax lawyer in the Supreme Court. It was also unconstitutional to manipulate the consolidated fund, he said.
Taxes received by the FBR become part of the federal divisible pool. The government then transfers 57.5% of the divisible pool to the provinces as their share in federal taxes. However, despite adding SRB’s taxes, the central government cannot make these part of the divisible pool, said Haq.
According to an SRB official, the FBR was withholding Rs2.5 billion of provincial government’s taxes in order to reduce the shortfall.
FBR spokesperson Riffat Shaheen Qazi said the revenue board would not formally announce the tax figures until it received reconciled statements from banks in order to avoid confusion.
In an attempt to reach the target, say sources, the FBR has blocked billions of rupees in refunds while banks have been asked to early deduct and deposit withholding tax on profit paid to the depositors. This has fetched Rs5.5 billion to Rs6 billion for the FBR.
The FBR has also announced amnesty schemes even in criminal cases to improve its revenues.
Meanwhile, the Punjab government has announced that it has established its own revenue collection body – the Punjab Revenue Authority. The authority, headed by Iftikhar Qutab, will start collecting taxes from today (Sunday).
Published in The Express Tribune, July 1st, 2012.