IMF review: FBR likely to collect Rs130b less than tax target

If lower target is achieved it will still be 21% higher than last year’s collection.

ISLAMABAD:

Pakistan will miss its current fiscal year’s tax target by Rs130 billion, according to an International Monetary Fund (IMF) assessment, which has heightened chances that the government may impose more taxes to bridge the shortfall in order to meet a key condition of an IMF loan programme.

Contrary to the government’s claim of taking a giant leap towards improving tax administration and broadening the tax net in this year’s budget, the IMF report said the new budget made “little progress towards a more efficient and equitable tax system”.

“The authorities (Pakistan) are more optimistic than IMF staff about the potential for short-term revenue gains via improvements in tax administration,” said the IMF.



In its assessment of revenue measures the government announced in the budget aimed at achieving Rs2.475 trillion annual target, the IMF said tax revenue would fall short of the target by Rs130 billion.

Against the target of Rs2.475 trillion that requires about 28% growth, the government may collect Rs2.345 trillion, according to the assessment. Even this Rs2.345 trillion will translate to about 21% growth over last year’s collection of Rs1.936 trillion.

In the first two months (July-August) of current fiscal year, the growth in revenues stood below 20% and the Federal Board of Revenue (FBR) collected Rs16 billion less than the target.

The FBR was hoping to collect Rs976 billion in income tax but the IMF believes it will not be able to collect more than Rs892 billion, lower by Rs84 billion.

Similarly, the assessment showed that against the Rs1.053 trillion sales tax target, the FBR could receive at best Rs1.014 trillion, a slippage of Rs39 billion. Federal excise duty collection is estimated to miss the target by Rs16 billion to Rs151 billion.

However, the IMF said customs duty collection may rise past the Rs120 billion target and reach Rs122 billion.

Through the Finance Bill 2013, the PML-N government imposed Rs207 billion in new taxes, said Finance Minister Ishaq Dar in his post-budget press conference. According to economists, this government like the previous one is banking heavily on indirect taxes instead of tapping areas that have more potential.

The most regressive step that the government took was increasing the general sales tax to 17% from 16% in addition to increasing the withholding tax on telecommunication sector from 10% to 15%.

“The government placed more burden on those who were already in the tax net instead of venturing into areas like wholesale and trade that are paying far less than their potential,” said Dr Faisal Bari, Associate Professor of Economics at Lahore University of Management Sciences.

Saying that Pakistan would miss its tax target, the IMF, however, acknowledged that the authorities were willing to take more measures to make up for any shortfall.

Citing a World Bank study, the IMF said Pakistan could further raise GST and excise duty rates to increase tax revenues – a suggestion, if implemented, is bound to fuel inflation.

Under the $6.7 billion bailout package, Pakistan has to reduce its budget deficit to 5.8% of gross domestic product. Any breach of this commitment will require the government to seek concession from the IMF Executive Board. The IMF appears determined not to give any relaxation this time.

The IMF said levy of a full value added tax remained the first best option to boost tax revenues but if this was politically unfeasible other policy measures like reducing tax exemptions and concessions could be considered.

Published in The Express Tribune, September 17^th,  2013.

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