Falling short: Challenges mount as tax target missed in first month

FBR could collect Rs130b against July’s target of Rs137b.

ISLAMABAD:

The Federal Board of Revenue (FBR) is likely to miss the monthly tax collection target by at least Rs7 billion, as it could pool approximately Rs130 billion by the last working day of July.

The shortfall at the start of the new fiscal year underscores the challenges that tax collectors will face to achieve this year’s ambitious annual target of Rs2.810 trillion, say experts. July’s revenue figure is 4.6% of the annual target.

According to unofficial provisional results, the FBR collected a net Rs129 billion until Monday afternoon, which could be expected to reach Rs130 billion by the close of the day. It was the last working day before the country goes on week-long break including four-day Eid holidays beginning Tuesday.

Though the July target was Rs137 billion, it did not correspond with the annual figure of Rs2.810 trillion. In July last year, the FBR had set the target at Rs139 billion and ended up collecting Rs127 billion. Last July’s tax figure represented 5.1% of the annual target.

However, the State Bank of Pakistan’s data showed that the FBR got Rs124.3 billion in taxes in July last year.

In the previous fiscal year, the government aimed to bring Rs2.475 trillion in tax revenues but it could receive Rs2.266 trillion. Even this Rs2.266 trillion figure is yet to be reconciled by government agencies, say sources in the Ministry of Finance.

Gross collection in July this year stood at Rs134 billion, of which Rs5 billion was refunded to the taxpayers. The FBR needs to achieve 24% growth to meet the annual target. It believed that it was well-positioned to reach the monthly goal, but may remain short of it because of closure of businesses during Eid holidays.

The annual collection of Rs2.810 trillion is very critical to remain within the budget deficit target of 4.8% of gross domestic product or Rs1.390 trillion, as agreed with the International Monetary Fund. The deficit, which shows the gap between income and expenditure, leads to huge bank borrowings.

The government has already identified several contingency measures that can be undertaken if expected fiscal adjustment fails to meet the objective, says a written assurance given to the IMF.

If the country falls short of the tax target, the government will try to eliminate statutory regulatory orders (SROs) before a set deadline. The SROs giving Rs81 billion worth of tax and duty concessions, which are supposed to be withdrawn from fiscal year 2015-16, will be scrapped in the current fiscal year if the collection remains dismal in the first nine months, according to the Memorandum of Economic and Financial Policies (MEFP).

This will be in addition to the Rs231 billion in new taxes that the government imposed from July this year.

The revenue shortfall may also jeopardise the central government’s understanding with provinces about savings of Rs289 billion by them to keep the overall budget deficit restricted to 4.8% of GDP.

According to the finance ministry, the provinces have linked their savings with the FBR’s success in generating revenues of Rs2.810 trillion.

Under the seventh National Finance Commission (NFC) Award, the provinces will get 57.5% of federal taxes as their share. In the current fiscal year, their share has been estimated at over Rs1.7 trillion.

The breakdown of July’s figure showed that gross sales tax collection stood at Rs69.4 billion including refunds. However, net sales tax remained flat despite the fact that the government took a number of measures in the budget to boost revenues.

However, these steps could not increase growth as loopholes are yet to be plugged. Massive corruption was said to be one of the main reasons behind the dismal performance in sales tax collection, sources said.

The FBR received Rs5.2 billion in federal excise duty while income tax collection totalled Rs41.8 billion. Under the head of customs duties, the revenue body received Rs17.2 billion.

Published in The Express Tribune, July 29^th,  2014.

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