Consistent disappointment: FBR resorts to coercion to cover revenue shortfall
Tax authority forcing banks to pay advance income taxes to hide its own inefficiencies.
Any shortfall in collection against the Rs2.007 trillion target will shrink the base and roll over to next year, making next year’s envisaged target of Rs2.475 trillion harder to achieve, officials added. CREATIVE COMMONS
ISLAMABAD:
In its desperation to cover its embarrassing performance this fiscal year, the Federal Board of Revenue (FBR) has reportedly ended up taking a measure that may ultimately invite the International Monetary Fund’s (IMF’s) wrath.
The country’s top tax authority has reportedly obtained Rs11 billion in advances from various domestic banks to cover a massive shortfall in the revenue collection target – a target that had already been revised downwards four times from what it originally was. And that is not the end of it: the FBR is reportedly still looking to other sources for billions of rupees it still needs to cover up its inefficiency.
And, despite the Rs11 billion secured in advances and the billions of rupees of withheld taxpayer refunds, the FBR has been able to collect only Rs1.842 trillion as of June 24, 2013. This leaves it with just six days to collect another Rs165 billion and achieve the four-time revised target of Rs2.007 trillion, sources revealed. For some perspective on how dysfunctional the nation’s top tax authority is, consider that the FBR’s original target was Rs2.381 trillion
The amount collected so far is just Rs85 billion or 4.5% higher than what FBR collected in the same period last year. This nominal growth exposes the weaknesses of a rapidly imploding tax machinery, as the rate is far lower than even the non-inflation adjusted economic growth rate of 11% for the outgoing fiscal year.
The highly-likely shortfall in the revised target will have a direct bearing on next year’s fiscal framework and considerably weaken the country’s position in ongoing negotiations with the IMF, from which it seeks to obtain another loan in order to avert a looming balance of payments crisis. It will also be a blow to the credibility of the new government, which has promised transparency in every sphere of governance.
But these strategies are hardly novel: the FBR has resorted to seeking Rs25 billion to Rs30 billion in advance income taxes from banks, something it also did in previous years, sources told The Express Tribune. “FBR Chairman Ansar Javed and other senior officials are planning to travel to Karachi to negotiate with banks in this regard,” they added.
The FBR is forcing banks to pay advance income tax that becomes due in the months of July and August, confirmed banking industry sources. The banks are obliging the FBR, fearing reprisals if they refuse, they added.
After it became clear that the revised tax targets would not be achieved, the FBR approached the banking sector to coerce them to pay advance income taxes. The banks approached include Habib Bank, Karachi; National Bank of Pakistan, Karachi; United Bank, Karachi; Muslim Commercial Bank, Lahore and some other banks in Islamabad, sources revealed.
The chairman FBR had not responded to questions regarding this development till the filing of this story.
With Rs1.842 trillion in hand, the FBR cannot pool more than Rs1.930 trillion till June 30 without taking advances, sources said.
Any shortfall in collection against the Rs2.007 trillion target will shrink the base and roll over to next year, making next year’s envisaged target of Rs2.475 trillion harder to achieve, officials added. The federal government has announced steep fiscal adjustments, equal to 2.5% of GDP, which hinge on the FBR’s ability to collect Rs2.475 in taxes in fiscal year 2013-14.
The FBR has collected Rs161.6 billion in the first 24 days of June – higher by Rs12.6 billion or 8.5% than the same period last year. It now needs to collect Rs18.7 billion per day, on average, to show some positive growth. Officials, who wish to stay anonymous, confess that this is next to impossible.
Even if the FBR manages to collect Rs274 billion by the end of June (thereby equaling last year’s collection) through illegal advances from banks, it will nonetheless end up with only Rs1.954 trillion collection – still behind the revised target by about Rs53 billion.
Published in The Express Tribune, June 26th, 2013.
In its desperation to cover its embarrassing performance this fiscal year, the Federal Board of Revenue (FBR) has reportedly ended up taking a measure that may ultimately invite the International Monetary Fund’s (IMF’s) wrath.
The country’s top tax authority has reportedly obtained Rs11 billion in advances from various domestic banks to cover a massive shortfall in the revenue collection target – a target that had already been revised downwards four times from what it originally was. And that is not the end of it: the FBR is reportedly still looking to other sources for billions of rupees it still needs to cover up its inefficiency.
And, despite the Rs11 billion secured in advances and the billions of rupees of withheld taxpayer refunds, the FBR has been able to collect only Rs1.842 trillion as of June 24, 2013. This leaves it with just six days to collect another Rs165 billion and achieve the four-time revised target of Rs2.007 trillion, sources revealed. For some perspective on how dysfunctional the nation’s top tax authority is, consider that the FBR’s original target was Rs2.381 trillion
The amount collected so far is just Rs85 billion or 4.5% higher than what FBR collected in the same period last year. This nominal growth exposes the weaknesses of a rapidly imploding tax machinery, as the rate is far lower than even the non-inflation adjusted economic growth rate of 11% for the outgoing fiscal year.
The highly-likely shortfall in the revised target will have a direct bearing on next year’s fiscal framework and considerably weaken the country’s position in ongoing negotiations with the IMF, from which it seeks to obtain another loan in order to avert a looming balance of payments crisis. It will also be a blow to the credibility of the new government, which has promised transparency in every sphere of governance.
But these strategies are hardly novel: the FBR has resorted to seeking Rs25 billion to Rs30 billion in advance income taxes from banks, something it also did in previous years, sources told The Express Tribune. “FBR Chairman Ansar Javed and other senior officials are planning to travel to Karachi to negotiate with banks in this regard,” they added.
The FBR is forcing banks to pay advance income tax that becomes due in the months of July and August, confirmed banking industry sources. The banks are obliging the FBR, fearing reprisals if they refuse, they added.
After it became clear that the revised tax targets would not be achieved, the FBR approached the banking sector to coerce them to pay advance income taxes. The banks approached include Habib Bank, Karachi; National Bank of Pakistan, Karachi; United Bank, Karachi; Muslim Commercial Bank, Lahore and some other banks in Islamabad, sources revealed.
The chairman FBR had not responded to questions regarding this development till the filing of this story.
With Rs1.842 trillion in hand, the FBR cannot pool more than Rs1.930 trillion till June 30 without taking advances, sources said.
Any shortfall in collection against the Rs2.007 trillion target will shrink the base and roll over to next year, making next year’s envisaged target of Rs2.475 trillion harder to achieve, officials added. The federal government has announced steep fiscal adjustments, equal to 2.5% of GDP, which hinge on the FBR’s ability to collect Rs2.475 in taxes in fiscal year 2013-14.
The FBR has collected Rs161.6 billion in the first 24 days of June – higher by Rs12.6 billion or 8.5% than the same period last year. It now needs to collect Rs18.7 billion per day, on average, to show some positive growth. Officials, who wish to stay anonymous, confess that this is next to impossible.
Even if the FBR manages to collect Rs274 billion by the end of June (thereby equaling last year’s collection) through illegal advances from banks, it will nonetheless end up with only Rs1.954 trillion collection – still behind the revised target by about Rs53 billion.
Published in The Express Tribune, June 26th, 2013.