Pakistan-Revenue shortfall increased despite efforts

Pakistan facing revenue shortfall of Rs 385 billion

The shortfall stands at Rs 385 billion in the first seven months of current financial year. PTI government already revised tax collection target of Rs 5555 billion to Rs 5228 billion after convincing the IMF. But still Federal Board of Revenue (FBR) is facing whopping Rs 385-billion tax shortfalls. And on top of that the number of tax return filers has also declined by 16%.

From July through January of the current fiscal year, the FBR provisionally collected Rs2.405 trillion in taxes, according to the officials. The original target was Rs2.791 trillion and the FBR fell short of the goal by a record Rs 385 billion.

The slowdown in the economy and imports have impacted the efforts of FBR to achieve the revenue target. The reduced imports means less customs and excise duties collections. The low business sentiments are also not helping the FBR to meet the tax collection targets. The GDP growth fell from 5.5% to nearly 2.8%. 

So this means there will be a mini-budget soon. And more indirect taxes are likely to be imposed through the mini-budget. There are proposals under discussion to increase or slap 17% sales tax on dozens of items including agricultural inputs, industrial goods, agricultural machinery and consumable items.

Since the number of tax return filers remains below 2.35 million, the government on Friday gave another extension in the last date to February 28 in the hope of matching last tax year’s (2018) number of 2.8 million return filers. Till January 31, about 2.336 million people had filed tax returns, down by 454,000 or 16.2% compared to the 2018 tax year.

The Rs2.405-trillion provisional collection was 16% or Rs 338 billion higher than the same period of last fiscal year. Last year, the government had collected Rs2.067 trillion in the same period. On the insistence of the IMF, the federal government had set the FBR tax collection target at Rs5.555 trillion or 12.4% of GDP.

The IMF had set an unrealistic target of increasing collection by 45% from last year’s level of Rs3.829 trillion. It had forced Pakistan to take unprecedented revenue measures of Rs 735 billion.

IMF is again putting pressure on Pakistan to take additional revenue measures to achieve the annual Rs5.238-trillion target. They said the FBR’s final assessment was that it could not collect more than Rs4.7 trillion without additional revenue measures.

The tax collection is falling short of the target despite imposition of an additional Rs 735 billion worth of taxes by Prime Minister Imran Khan’s government in the current fiscal year.

The seven-month collection was 16.3% or Rs 338-billion higher than the previous year. However, it was largely the result of blocking exporters’ refunds and enhanced sales tax collection on domestic sales of garments.

                                           Khalid Bhatti