FBR’s conundrum: Tax collection unsatisfactory, gap widens by Rs113b

Less-than-anticipated collection has started affecting the fiscal framework of provinces.

ISLAMABAD:

Despite efforts of the Federal Board of Revenue (FBR), revenue collection grew only in single digit as gap between the target and actual collection widened by Rs113 billion in the first seven months of the current fiscal year.

This comes in spite of an increase in the tax burden on consumers of petroleum products.

According to provisional figures compiled by the FBR, the tax authorities collected Rs1.333 trillion in taxes from July through January, higher by Rs109 billion or 8.9% over the number in the corresponding period of previous fiscal year.



The FBR was supposed to collect Rs1.446 trillion in a bid to achieve the original target of Rs2.81 trillion, however, it fell short of the goal by Rs113 billion. It needed 24% growth in revenues to achieve the target approved by parliament.

Less-than-anticipated revenue receipts have also started affecting the fiscal framework of provinces that heavily rely on the federal divisible pool to fund their operations.

The government has started penalising the consumers for inefficiency of the tax machinery as it has increased the general sales tax on all petroleum products to 27% against the standard 17%. This is the highest rate of sales tax on any product in the history of the country.

The FBR has already missed the first-half target, falling short of the indicative ceiling set by the International Monetary Fund (IMF) in a bid to force the tax authorities to ramp up efforts.

Against its first-half target of Rs1.246 trillion, the FBR had collected Rs1.165 trillion from July through December.

The IMF has lowered its projection and is anticipating that the FBR will not be able to collect more than Rs2.756 trillion. However, independent economists suggest the collection will be around Rs2.6 trillion despite the additional revenue-generating measures.



Gross income tax collection amounted to Rs526 billion from July through January, which was Rs47 billion or only 9.8% higher than the previous fiscal year. This is despite the fact that the government has imposed a number of withholding taxes in July 2014 aimed at improving the income tax collection.

Withholding tax constituted over 60% of the total income tax collection. The single-digit growth in income tax underlines the inefficiency of the FBR and belies the claim that revenue collection was going down due to the reduction in retail prices of petroleum products.

An official of the FBR admitted, on condition of anonymity, that field formations of the FBR lacked direction and there was also no big push from the FBR headquarters to improve the collection.

He said ad hoc measures like increasing the sales tax rate would not improve collection until the government introduces drastic reforms.

The FBR collected Rs615 billion in sales tax, which was only Rs30 billion or 5.1% higher than the figure in the comparative period last year. The growth in sales tax was even lower than the nominal gross domestic product growth, indicating leakages and absence of meaningful efforts to improve the revenues.

The FBR has also failed to bring retailers and wholesalers in the tax net despite introducing a number of measures in the 2014-15 budget.

Gross collection on account of federal excise duties stood at Rs83 billion, higher by Rs15 billion or 22%. Customs duties amounted to Rs156 billion, registering a growth of 15.5%.

The FBR disbursed Rs47 billion in tax refunds, which was just Rs3 billion higher than the comparative period.

Published in The Express Tribune, February 3^rd, 2015.

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