The Federal Board of Revenue (FBR) has failed miserably to meet the outgoing fiscal year’s tax collection target, weakening Islamabad’s position as it enters a ‘make-or-break’ round of talks with International Monetary Fund (IMF) for a new bailout programme today (Monday).
According to provisional results compiled till Sunday, the board could only collect Rs1.92 trillion in taxes, falling short of the original collection target by Rs461 billion and the revised target by Rs87 billion. The previous parliament had originally approved a Rs2.381 trillion annual revenue target for 2012-13 (which ended Sunday as well), but the figure was revised to Rs2.007 trillion by the new government after it foresaw a significant shortfall.
The staggering shortfall has pushed Pakistan’s budget deficit to around Rs2.1 trillion – over 9% of gross domestic product – the highest ever in the country’s history. The initial collection results are even lower than the expectations of the visiting IMF team, which placed the figure at around Rs1.97 trillion.
According to finance ministry sources, the future of the Pakistan-IMF relationship hinges on today’s (Monday) policy level talks, where both sides will discuss the conditions for the new bailout. They lamented that FBR’s failure has not only robbed Pakistan of some leverage before the lending institution in this regard, but also strengthened its impression that next year’s revenue target of Rs2.475 trillion is ‘unrealistic’.
To achieve the target, FBR will need to collect Rs555 billion more than the collection figure for 2012-13 – a feat that requires a growth rate of 29%. Such a rate will not be possible until the government revamps the board, the sources said.
The IMF has already demanded Pakistan levy new taxes worth Rs275 billion to achieve the target for 2013-14. However, Finance Minister Ishaq Dar has ruled out the possibility of levying new taxes, even if the IMF refuses to give the country a loan.
According to the sources, the institution has forwarded the first draft of a letter of intent (LoI) – a set of policy actions that Pakistan will have to implement to qualify for the bailout programme – to the government. The first draft will remain open for discussion, they said, adding that once an agreement is reached, the LoI will be signed by the finance minister and the governor of the State Bank, and will be sent to the IMF as a formal request for the loan.
While revealing the provisional results to The Express Tribune, outgoing FBR Chairman Ansar Javed claimed that the board will manage to pool between Rs20 billion and Rs30 billion more and push the total collection figure for 2012-13 to Rs1.94 trillion after making some ‘book adjustments’. Sources, however, maintained that any collection beyond Rs5 billion on account of the adjustments would be the result of taking more advances from banks.
Rampant corruption within FBR, tussles between Customs and Inland Revenue Services Groups, and political appointments at key posts are said to be some of the main reasons behind the massive shortfall.
“If the FBR has failed, it is not my responsibility,” asserted Javed.
A senior board official, meanwhile, has urged the new government to appoint a commission to ascertain the reasons behind the failure to meet the revenue target.
Published in The Express Tribune, July 1st, 2013.