Devices to achieve tax targets
DESPITE a sluggish economic growth last fiscal year, the Federal Board of Revenue collected Rs1905 billion in 2011-12 against the target of Rs1952 billion. Some more billions may be added to the revenue after reconciliation of accounts in the next couple of weeks.
The FBR expects the total revenue to reach close to Rs1920 billion, but there may still be a shortfall between Rs30 billion to Rs40 billion.
While the revenue increased over years in absolute terms, the tax-to-GDP ratio has stagnated at around nine per cent over the past few years. That puts a big question mark about the performance of the FBR particularly as tax compliance and enforcement have further deteriorated in the outgoing fiscal year.
The number of taxpayers filing returns has fallen to 1.3 million in 2011-12 from 1.965 million the previous year, reflecting a decline of over 34 per cent. Similarly, the taxpayers registered with the sales tax department are slightly over 100,000 but more than 80 per cent revenue is generated from 10 revenue spinners. As a result, the tax compliance level has also fallen to 39.5 per cent in 2011-12 from previous year’s 65 per cent.
The FBR has established 19 regional tax offices (RTOs) with huge investments. The tax revenue collection by these RTOs is raised through at source deduction, which ranges between 95 to 97 per cent. Tax officials have no role in these collections, as these can even come to the government account without these offices. Currently, the cost of running these offices is more than the revenue generated by them..
Now the question arises as to how the FBR manages to reach closer to their set revenue target. It is simple. Factors directly contributing to the revenue collection are: oil price hike, tax amnesty, recovery of arrears, rupee depreciation, rising imports bill, double-digit inflation and advance taxes.
The revenue was raised through one-time measures.The large-scale manufacturing sector, a major contributing sector in revenue has posted a sluggish growth during 2011-12.
The revenue target was projected at a time when the oil prices in domestic market were around Rs80 per litre. Good for tax officials and bad for general public, the oil prices exceeded an all-time high of over Rs105 a litre. This rise in prices yielded additional easy revenue for the FBR. Normally, oil is one of the major revenue spinners for the government.
FBR Chairman Mumtaz Haider Rizvi announced tax amnesty schemes for income tax, sales tax, federal excise duty, and customs. The defaulting taxpayers were allowed to pay the principal amount and exempted from payment of surcharge, penalties on them due for the last few years. In May, the amnesty scheme yielded Rs10 billion for the tax officials. These figures could be higher in June.
Aside from this, the FBR also announced an amnesty scheme for those influential people who last year received from the tax department illegal sales tax refunds amounting to over Rs32.6 billion against claims based on fake and flying invoices. This scheme also raised some easy billions in revenue. The recovery of arrears is another area, which contributed to revenue collection. These include recovery of Rs5 billion from PIA, around Rs8 billion from defence forces and Rs15-20 billion from banks. The banks had deducted the amount from the taxpayers but the same was not deposited in the government exchequer.
The depreciation of rupee and rising imports bill also contributed to revenue collection during the outgoing fiscal year. Taxes collected at the import stage—-customs duties, sales tax, federal excise duty (FED) and withholding tax—-have recorded huge growth. A 125 per cent increase was witnessed in collection of customs duties while sales tax collection at imports stage posted a growth of 40 per cent, FED 80 per cent and withholding tax 32 per cent, respectively in 2011 and 2012.
Other factors that contributed to tax revenue came from the double-digit inflation, 3.7 per cent growth in GDP, increase in energy prices and out of court settlement of litigation cases. Included is the hobby of the FBR to take advance taxes from rich taxpayers to show positive results. Last year, the FBR took more than Rs37 billion advance taxes in three days alone. However, Mr Rizvi said he has not taken a single penny in advance tax this year.
Contrary to this, the FBR chairman said the major state-owned enterprises owed Rs82 billion in taxes to the FBR. Over Rs50 billion were due from power companies alone, he said, adding this revenue was stuck up because of the circular debt. He admitted that the revenue got a boost from the amnesty schemes.
If the government is serious to improve the tax administration, the FBR should focus on tax compliance and enforcement of tax laws.