Despite introducing five mini-budgets and blocking taxpayers’ refunds, the government has failed to achieve three-time downward revised tax target of Rs2.605 trillion, indicating that the country’s tax machinery requires an urgent revamp.
“By end of fiscal year 2014-15, the Federal Board of Revenue (FBR) provisionally collected Rs2.580 trillion in taxes,” said FBR member Nadeem Dar. With this collection, the FBR has missed the goalpost for seventh year on the trot, including two years of the present political dispensation.
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The FBR fell short of its original target of Rs2.810 trillion by a whopping Rs230 billion. The collection also fell short of the revised target of Rs2.605 trillion by Rs25 billion.
The shortfall against the original target was almost equal to Rs238 billion of new taxes that the government has levied with effect from July 1. The industry is already clamouring against the heavy tax burden, saying it is becoming uncompetitive against regional peers.
Masoud Naqvi, chairman of Tax Reforms Commission (TRC), identifies political interference, increasing size of black economy and weak enforcement due to unchecked corruption and complacency among the taxmen as the main reasons behind the dismal performance.
The parliament had originally approved the Rs2.810 trillion annual revenue target for 2014-15, which ended on Tuesday, but the figure was first revised to Rs2.756 trillion and then to Rs2.691 trillion and finally to Rs2.605 trillion.
There is no scientific process to determine the tax targets, said Naqvi, while strongly advocating that the FBR should be given administrative autonomy for better results. The NTC chief said that FBR’s workforce was unfamiliar with modern accounting standards and were unable to read the company balance sheets.
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The massive shortfall in tax revenues will further compound the government’s problems, which is already struggling to achieve the budget deficit target of Rs1.343 trillion or equivalent to 4.9% of GDP. In anticipation of huge shortfall, the government has already squeezed the development spending and released only Rs437 billion as of June 29.
The revenue shortfall will also torpedo provincial budgets that get 57.5% of federal tax collection as their share in what is called the federal divisible pool.
The provisional collection was Rs324 billion or 14% higher than the Rs2.256 trillion that the FBR pooled in the previous fiscal year. However, when the figure is analysed while keeping in mind the unprecedented Rs360 billion additional taxes in a single year and Rs200 billion refunds that the FBR blocked, the performance sounds far more depressing.
The FBR blocked over Rs220 billion in refunds to inflate its revenues and by excluding the refunds, the net FBR’s collection is only 4% higher than the previous year.
“It is a shameful outcome given the fact the government introduced five mini-budgets and blocked taxpayers’ refunds,” said Dr Ashfaque Hasan Khan, dean of School of Social Sciences & Humanities of NUST. He said the most worrisome aspect is that no one precisely knows what the actual tax collection is.
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The government had claimed that reduction in commodity prices adversely affected its revenues to the tune of Rs80 billion. The government’s claim that commodity prices affected its taxes has become a joke, as it levied additional taxes that were far more than the impact of the commodity prices, said Dr Asgfaque.
The missing of the revenue collection target will have direct bearing on new fiscal year 2015-16’s Rs3.104 trillion target as it will erode the base by the same amount, making it ‘unrealistic’. To achieve the Rs3.104 trillion target, the FBR will need to collect Rs524 billion more than the collection figure for 2014-15 – a feat requiring a growth rate of 20%, a near-impossibility.
Published in The Express Tribune, July 1st, 2015.