Poor tax collection: FBR, finance ministry shift blame on to each other

Revenues have increased only 7% against required growth of 26%.

ISLAMABAD:

As criticism mounts over inability of the Federal Board of Revenue (FBR) to meet targets, tax authorities have defended their performance and instead held the finance ministry responsible for making inaccurate assumptions at the time of presentation of budget.

FBR Chairman Ali Arshad Hakeem faced embarrassment on Tuesday when the finance ministry told Prime Minister Mir Hazar Khan Khoso that the FBR had miserably failed to achieve the revenue collection target for the current fiscal year.

According to FBR’s documents, in the first 26 days of March, it collected Rs128.5 billion compared to Rs98.3 billion in the same period of last year, a 30.8% increase which the tax authorities have described as impressive and much higher than inflation unadjusted gross domestic product (GDP) growth rate.

Of the total, the collection of direct taxes rose 60.2% at Rs50.7 billion against Rs31.6 billion in March last year.

In indirect taxes, Rs55.7 billion was received as sales tax compared to Rs48.5 billion received last year, a growth of 15%. Federal excise duty collection increased 16.9% at Rs8.2 billion compared to Rs6.9 billion in March last year. Growth in customs duties was 24.6% as the FBR bagged Rs14 billion against Rs11.2 billion last year.



“The exceptional increase in revenues in March is a seasonal phenomenon as at the close of each quarter tax collection jumps because of advance payments,” said Dr Ashfaque Hasan Khan, Dean of Business School of National University of Science and Technology.

Unlike the high growth in March, tax collection in nine months (July-March) stood at Rs1.29 trillion, up Rs81.8 billion or 6.8% over the corresponding period of last fiscal year, according to the FBR documents. This is far short of the growth rate of 26% that the FBR needs to meet the annual tax collection target of Rs2.381 trillion.

Reasons for shortfall

The FBR was of the view that the finance ministry had set this year’s tax target on unrealistic foundations and the board would defend its position in front of the prime minister.

The ministry had expected the nominal GDP to remain around 16%. Contrary to this, the nominal GDP has so far been around 12% as both inflation and GDP growth targets have been revised downward.

The FBR’s performance too has been marred by political appointments on key posts. According to officials, people with tainted past have been brought to important positions under political considerations and the FBR chairman has little option to make appointments.

Another big hurdle that stands in the way of boosting revenues is the tax break given to influential lobbies by the previous government, the officials said.

The FBR has withdrawn various tax measures announced on the eve of federal budget like 1% tax on all types of manufacturing. Apart from this, tax relief has been given to sugar and steel industries, allegedly under political compulsion.

Published in The Express Tribune, March 28^th, 2013.

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