Sticking to tradition: Despite taxing at higher rates, FBR misses collection target

Without fixing the system, the govt can never achieve revenue targets.

ISLAMABAD: Despite collecting sales taxes at higher rates, the Federal Board of Revenue has, yet again, missed the monthly tax collection target by at least Rs12 billion as the authorities failed to plug loopholes, which helped evaders in saving huge amounts in sales taxes.

According to provisional results, the revenue collection authority collected net Rs127 billion as taxes in July. The gross monthly collection remained at Rs135 billion, out of which Rs8 billion was refunded to the taxpayers. The net collection is Rs20 billion, higher over the collection made in July last year, showing a growth rate of about 19%.

However, despite this double-digit growth, the FBR remained behind the required growth rate of 28% to achieve the Rs2.475-trillion annual target. The monthly collection was 5.1% of the annual target.



“The provisional tax collection (figures) reflects merely the icing on the cake, hence, a lot more is to be done to achieve the mammoth target of Rs2.475 trillion,” said Ashfaq Tola, a Karachi-based tax expert and a senior partner at Naveed Zafar Ashfaq Jaffery and Company – a chartered accountants firm.

If the trend of missing tax targets continues in the coming months, the International Monetary Fund (IMF), during the quarterly review meetings, may ask Islamabad to levy more taxes to achieve the annual target, said Dr Ashfaque Hasan Khan, dean of the business school of the National University of Science and Technology. He said the IMF will not accept any shortfall against quarterly and annual collection targets.

The shortfall in revenues may also jeopardise the government’s understanding with the provincial governments for saving Rs117 billion by the federating units to keep the overall budget deficit at 6% of the gross domestic product, as agreed with the IMF. According to the finance ministry, the provinces have linked the savings with the FBR’s ability to generate Rs2.475 trillion.

Under the 7th National Finance Commission Award, the provinces will get 57.5% of the federal taxes as their share. For the current fiscal year, the provinces share has been estimated at Rs1.502 trillion.

The breakup of the total collection showed that the dismal sales tax collection kept the overall collection below the target. As against Rs63.8 billion sales tax collection last July, the gross sales tax collection remained at Rs69.8 billion including refunds. The net sales tax collection remained flat, despite the fact the government has increased overall sales tax rate to 17% from 16% from June 22.

It also increased the sales tax rate by another 1% to 18% for non-registered persons. However, these measures could not boost growth, as the government has so far remained unable to plug loopholes. Massive corruption is said to be one of the main reasons behind dismal sales tax performance, according to the sources.

The collection on account of federal excise duties fell even below the level achieved in July last year, according to the provisional results.

Improving the integrity of the tax machinery by eradicating corruption was one of the two main goals of the new FBR Chairman Tariq Bajwa, said FBR spokesperson Riffat Shaheen Qazi. She said the FBR has taken various measures to improve the collection that will soon start yielding results.

The income tax collection remained quite impressive as the gross FBR collection stood at Rs40.5 billion as against Rs27.8 billion gross collection in the last fiscal year. But the collection on account of customs duties remained at last year’s level but below the monthly target.

Published in The Express Tribune, August 1^st, 2013.

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