Low returns: Tax target missed

Increased chances of slashing development budget.

ISLAMABAD: Despite blocking the taxpayers’ refunds and inflating collection figures, the tax authorities have missed the first-half year tax collection target by Rs95 billion, which has increased prospects of slashing the development budget by Rs130 billion.

According to provisional results compiled by the Federal Board of Revenue (FBR), it has provisionally collected Rs1.02 trillion in taxes from July to December period of this financial year as against the target of Rs1.15 trillion. The provisional collection figures are expected to improve by a couple of billions of rupees.

For the current fiscal year, the federal government has assigned Rs2.475 trillion tax target to the FBR and the machinery was supposed to generate 45% of it in the first half.

The taxpayers have been accusing the FBR for blocking their refunds aimed at artificially ballooning the collection. There is also discrepancy of about Rs20 billion between the collection figures reported by the FBR and the audited statements of Accountant General of Pakistan Revenue and State Bank of Pakistan. The discrepancy pertained to the period of first five months and is exclusive of December collection.

The FBR paid Rs35 billion in refunds to the taxpayers in the first half of the fiscal year, according to FBR officials.

However, as compared to the first half of the previous financial year, the tax collection was Rs131 billion or 14.8% higher but below the required growth rate of 28%.

Yet Pakistan has managed to surpass the expectations of the International Monetary Fund that assessed in September that the FBR would be able to collect Rs997 billion in the first half of the fiscal year. The IMF has already lowered its tax collection projection to Rs2.345 trillion, which is Rs130 billion less than the official target.

In order to offset the impact of low collection on the budget deficit, the IMF has also shown current year’s development budget at Rs430 billion as against Parliament’s approved budget of Rs560 billion. Minister for Planning and Development Ahsan Iqbal has already made it clear that the Rs560 billion development spending hinges on the FBR’s ability to raise Rs2.475 trillion in taxes.

The FBR collected Rs375 billion in income tax in the first half of the fiscal year, which was only 37% of the total collection, underscoring increasing dependency on indirect taxation, which is regressive in nature. The IMF had estimated that the FBR will collect Rs380 billion in income tax.

The sales tax collection in the first half stood at Rs462 billion as against the IMF’s expectation of Rs431 billion. An increase of 1% in the rate of general sales tax remained the main reason behind increase in collection but yet it was lower than the target. In the budget, the government had increased the sales tax rate from 16% to 17%.

The collection on account of customs duties stood at Rs112 billion. The collection on account of federal excise duties remained at Rs70 billion.

Published in The Express Tribune, January 1^st, 2014.

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