4MFY15: Shortfall in tax collection widens further

Govt might revise Rs2.81 trillion target, cut down development spending .

Shahbaz Rana October 31, 2014


The shortfall in tax collection has further widened at the end of the fourth month of the current fiscal year as tax authorities bagged Rs723 billion from July through October (4MFY15), increasing chances of a cut the development budget or levy of new taxes. 

Revenue collection in 4MFY15 remained in line with original projections of the Federal Board of Revenue (FBR), but fell short of International Monetary Fund’s (IMF) determined target by Rs42 billion, according to provisional collection results.

The National Assembly set the Rs2.81 trillion revenue collection target for the current fiscal year 2014-15 following desires of the IMF. The FBR had proposed a Rs2.7-trillion target, which the Ministry of Finance did not accept due to IMF’s opposition.

In October alone, the FBR was falling short of its monthly target by at least Rs16 billion. Till Friday evening, the FBR pooled around Rs178 billion against the monthly target of Rs196 billion. The collection was expected to cross Rs180 billion once the final figures were available.

With an addition of Rs180 billion, the total revenue collection would reach around Rs723 billion in four months. On the basis of the Rs2.81-trillion annual target, the FBR was supposed to generate Rs765 billion in the first four months of FY15.

The FBR achieved 17% growth in revenue collection over the previous year against the required rate of 24%.

In 1QFY15, the FBR has said that it collected Rs543 billion in taxes, although the target was Rs569 billion.

The shortfall widened at a time when Pakistan is locked into negotiations with the IMF in Dubai under combined fourth and fifth reviews of the $6.7-billion programme. The release of the next loan tranche of $1.1 billion in December is linked with the successful culmination of the ongoing talks.

However, the government is also facing problems in meeting certain conditions of the IMF and the next tranche would not be possible without a waiver from the lending body’s executive board, according to sources in the Ministry of Finance.

The results of 4MFY15 suggest that like previous years, the government may have to revise the target downwards or cut development spending. Pakistan has given a commitment to the IMF, that in order to achieve the overarching goal of reducing budget deficit to 4.9% of the Gross Domestic Product, it was ready to take contingency measures, according to the IMF’s documents.

The contingency measures include slowing down development spending and to advance the calendar to withdraw the second badge of sales tax exemptions to FY15 as against the plan to eliminate these from fiscal year 2015-16.

The government has already levied Rs231 billion additional taxes from July this year. Most of these new taxes are indirect in nature, which are considered regressive. Despite these measures, the sales tax collection grew approximately 5% in October, while the gross sales tax collection remained at Rs83 billion. The sales tax collection is expected to dip further in coming months due to decreasing prices of petroleum products in international and domestic markets.

The income tax collection showed impressive growth of 23% and stood at Rs63.2 billion in October.

Returns date extended

The federal government had extended the last date of filing the income tax returns for all categories of income taxpayers. The date was extended to November 21 from October 31 after the taxpayers faced difficulties in filing the returns due to hitches in online electronic filing.

However, the official reason given was religious events. Finance Minister Ishaq Dar extended the date due to advent of Muharram-ul-Haram and Hajj, according to a handout issued by the Ministry of Finance.

The income tax returns should be filed without waiting for the last date, as the FBR will not grant further extension, said Shahid Hussain Asad, the member of the Income Tax Policy of the FBR and the official spokesman.

Published in The Express Tribune, November 1st, 2014.

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