Business

Revenue collection up a little, tax hike up a lot

Increase in GST on petroleum products comes amid failure to meet tax target

Shahbaz Rana August 31, 2015

PHOTO: NEWSPAKISTAN

ISLAMABAD:

For the second successive month, the government increased tax rates on petroleum products by up to 50%, after collection numbers for July and August fell short of the target by around Rs35 billion.

The second mini-budget in as many months will help the Federal Board of Revenue (FBR) raise an additional Rs10 billion amid revenue leakages in the tax machinery. The need for the second mini-budget rose after the FBR provisionally collected Rs330 billion in taxes in July-August against a target of Rs365 billion.

Due to a growing gap between tax target and collection, Finance Minister Ishaq Dar also could not honour his promise of returning Rs30 billion refunds to the textile industry. He had given his word to All Pakistan Textile Mills Association that genuine refunds would be cleared by the end of August.

The FBR issued only Rs5 billion refunds in August, which was even less than the amount paid in the comparative month last year, according to officials.

DESIGN: NABIL AHMED

Identifying the problem

For August, the FBR had set a tax target of Rs199.3 billion but its provisional collection stood at only Rs181 billion, according to the FBR officials. The collection was just 1.2% up from the collection in August 2014 when it amounted to Rs179 billion. The FBR needs a growth rate of 20% to achieve the Rs3.104-trillion annual target.

The officials said that August collection may increase by an additional Rs5 billion once the final figures are compiled. The Rs35-billion shortfall in just two months suggests that the annual tax target is unachievable, which will make the current fiscal year the third year in a row when the PML-N government would be unable to meet its budgetary targets.

Falling oil prices add fuel to the fire

Meanwhile, in a bid to increase revenue amid falling oil prices, the federal government further increased sales tax rates in the range of 23% to 50%, putting maximum burden on the poor- and middle-income groups.

The government passed on less than the half of the proposed reduction in oil prices to consumers. The government has implemented Rs238.4 billon in additional taxes with effect from July 1 and two mini-budgets are over and above that amount.

GST on various items

The government increased the General Sales Tax (GST) on high speed diesel, used in public transport, by over 23%. As against the earlier rate of 36.5%, the new GST rate on HSD will be 45%, the highest ever sales tax rate in the history of the country on any consumer product, showed a notification issued by the FBR.

According to the notification, the government increased sales tax rate on motor spirit to 25.5% against the existing GST rate of 20%.

The GST rate on high octane blending component, which is used mostly in luxury vehicles, was increased to 24% from the existing 17%, which is still the lowest rate.

The GST rate on kerosene oil was increased to 30%, increasing the tax burden by 50%, the highest raise. The GST rate on light diesel oil was increased to 29.5% from the previous rate of 20%.

The mini-budget has been introduced in a bid to meet conditions of the International Monetary Fund. The government can change tax rates through administrative orders only in cases where it has to fulfill obligations of international lenders and meet emergency expenditure needs.

Like the previous month, the government increased the tax rates without seeking approval of the Economic Coordination Committee of the Cabinet.

The growing shortfall in tax revenues will make it difficult for the government to adhere to overall budget deficit target of 4.3% of Gross Domestic Product or Rs1.318 trillion for the current fiscal year, according to tax experts.

Published in The Express Tribune, September 1^st, 2015.

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COMMENTS (4)

karachi3 | 8 years ago | Reply One of the main reasons for a very slight increase in tax collection in month of July and August is that the tax department in may and June had taken advances as tax from large taxpayers to meet tax targets.Even some large taxpayers in April,May and June were told not to take Sales Tax input tax and instead pay tax.They were advised to take input tax credit in July to September. The fact is FBR has become pretty dysfunctional and major reforms are needed in FBR

Hani Rajput | 8 years ago | Reply Hiking up the tax is not the only path to earn cash. Government must take efforts for its implementation and proper collection of tax imposed to benefit. "A petrol pump sells petrol and gives government profit" this statement is dream for government and foreign agencies that give loan to Pakistan (including International Monetary Fund). In reality, the petrol pump do sell petrol illegally, and make huge profit to itself which leads to huge loss to government, and in turn government instead of catching these thieves increase tax on petrol and the final price of petrol is quiet up for the ordinary people and illegal sellers of petrol instead get richer rather than the government getting revenues for the tax imposed on petrol/diesel. Implementation of the rules, regulations and law is more important in petrol business than mere increase in tax. Increasing tax gives government little benefit and huge loss to the ordinary people. As no check is in place, the Government is directly responsible for taking money from poor and giving it to riches (owners of petrol pumps/staff involved in operation) by blindly increasing tax on petroleum without keeping a check whether tax is being collected or not. Government ministers (esp: finance minister and defence minister) must take this issue seriously. Such sale of petrol is not possible by petrol pump owners alone, it needs a greater support from higher ups. Local influential persons, police as well as petrol distributing companies may be involved to some extent to make the sale of illegal petrol possible without much notice. Approx: 10% to 100% of petrol is being sold illegally by petrol pumps depending on the location, situation and corruption in the area a petrol pump is operated. There are too petrol pump owners who are against such illegal acts, but the managers and local staff working at such petrol pumps do some illegal sale too without being caught by the owner. The real responsibility is of the license holder of such petrol pumps where illegal sale is carried out. If the Government manages to stop 100% of illegal sale of petrol, it will earn upto 50% more revenue, that will be equal to profit earned by increasing the price of petrol to Rs: 100 (as for 1st September's price) if no action against illegal sale is taken. 285 Total Parco 3500 PSO 421 Attock Petrol 800 Shell 261+ Byco 230 Overseas Oil Trading Company (Pvt.) Limited 350+ Admore approximately 300 of Hascol and many more registered pumps. There is also a increasing number of illegal/unregistered petrol pumps as well, with no registration and cancelled registration (the number of such petrol pumps cannot be ascertained due to lack of data) which sale 100% illegal petrol and take whole profit into their pockets, giving Government no profit. Such people are making easy money and they use this easy money in corruption, organized crime and other acts of violence, giving Government a huge blow instead of any benefit to it by corrupting the government functionaries and police. Ultimately crime increases by use of such illegal money. Government should take immediate notice of the matter.

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