Under the IMF programme, achieving this year’s revenue target is the key performance criteria in addition to the budget deficit target, which again largely hinges on the tax collection. DESIGN: ESSA MALIK
Pakistan may get the $6.6-billion bailout package from the Washington-based International Monetary Fund (IMF) but qualifying for the next tranche may not be an easy goal, as the country has so far struggled to fulfil a key performance criterion – tax collection.
The Federal Board of Revenue (FBR) managed to collect almost Rs145 billion worth of taxes in August, showing a healthy growth rate of 17% over the corresponding month’s collection last year. But despite such an encouraging growth, the collection was not enough to hit the monthly target of Rs159 billion. The provisional results showed that the FBR fell short of the monthly tax target by Rs14 billion.
It is the consecutive second month when the FBR has not been able to achieve the target. In July, the FBR marginally missed its Rs136 billion target and collected Rs134 billion, said Finance Minister Ishaq Dar last week. With that the accumulative shortfall in collection widened to Rs16 billion.
The cumulative collection in the first two months (July-August) of fiscal year 2013-14 remained at Rs279 billion against the target of Rs295 billion. The collection in the first two months was 11.3% of the total annual target of Rs2.475 trillion. Fiscal year 2013-14’s tax collection target is set 28% higher than the last year’s target of 1.936 trillion.
Under the IMF programme, achieving this year’s revenue target is the key performance criteria in addition to the budget deficit target, which again largely hinges on the tax collection. The executive board of the IMF will meet on Wednesday in Washington to consider Pakistan’s request for a three-year $6.6-billion bailout package.
Contrary to Pakistan’s request for releasing every tranche before the quarterly review of the IMF programme, the management of the lending agency has so far not agreed to approve a “front-loaded” programme, according to sources in the finance ministry. The release of every next tranche will be linked with successful achievement of the structural benchmarks and performance criteria, they added.
If the trend of missing the tax target continues in the coming months, the IMF during its quarterly review meetings may ask Islamabad to levy more taxes to achieve the annual target. The IMF will not accept any shortfall against the quarterly and annual collection targets.
Any shortfall in the revenues of the FBR will also undermine the federal 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 savings with the FBR’s ability to generate Rs2.475 trillion.
Last week, FBR Chairman Tariq Bajwa said that the annual target was “steep and very big” but vowed to achieve it through a combination of measures. He said that new revenue measures of about Rs200 billion announced in the budget, hopes of increase in economic activities and increasing inflation that will fetch more revenues and broadening the tax base will be FBR’s tools to achieve the annual target.
Under a commitment with the IMF, Pakistan had to send notices to 100,000 tax evaders before June 30, 2013 and bring them in the tax net. During the first two months of the fiscal year, the FBR has delivered notices to over 21,000 people, according to the FBR officials.
The IMF has also set a structural benchmark of reviewing the existing regime of statutory regulatory orders (SROs) – legal documents ascribing changes in the tax laws. The facility has grossly been misused in the past to give benefits to the affluent people. The IMF wants Pakistan to review the regime till December and withdraw the individual-industry specific SROs.
Finance Minister Dar has estimated collecting additional Rs300 billion by withdrawing such SROs.
Published in The Express Tribune, September 3rd, 2013.
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FBR has to find new tax payers and fast otherwise the IMF loan is doomed.The budget has provided nothing in this regard. The only revenue increase in Direct Taxes is through increasing taxes on the Salaried Class which the PML N had promised will not be touched.The other master stroke is the increase in the rate of Sales tax which will be paid by and large by the low income groups, the poor and by the industry. What is happening is the classical tax collectors recipe, a recipe for disaster. Why can't FBR see the non taxpayers and those paying less than what is due? May Allah give us some innovative methods of collecting more taxed. Can we find it in the currant circumstances? Lets hope so. Aameen.
The Sales Tax Refunds have been for all practical purpose been stopped since past Two month,hence the tax collection figures have distortion of about Rs 25 billion
In month of August 2013, LTU Karachi asked Banks and Insurance companies to pay advance tax that was due on 15th September in August.Hence there is further distortion of about Rs 20 billion in tax collection figures if you account for the above, tax collection figures need to be reduced by Rs 45 billion
@Sandip: Because you need Pakistan's cooperation in your fight in Afghanistan. No one is doing anyone any favours so stop pretending.
But yeah widening the tax base would be in Pakistan's interest too. But I don't see it happening. The people in power are the very ones that would be affected the most by this so they won't let it happen.
A couple of points here - one, the fact that broadening the tax base was number four in the list mentioned by FBR chairman itself shows the priority. Second, why isn't the agricultural income being taxed. Why should the rest of the world carry Pakistan's can? Why should money be provided to Pakistani government as grants when its own rich are not paying their taxes?