ISLAMABAD: The national tax collecting body has acknowledged that collections remained behind the target by Rs114 billion during the six months of the current fiscal, despite the fact that the revenue collection was 16.3 per cent higher than the corresponding period of last year.

In a statement, the Federal Board of Revenue (FBR) said that massive revenue loss occurred in July-December 2019 due to reduction in imports.

The statement says that compression in imports by more than $5bn has on the one hand improved the current account situation, but on the other adversely affected the usual revenue resources of the government.

“An estimated loss of Rs56bn of taxes has been incurred on every $1bn of import compression,” it says. Upon calculation, the total loss will reach Rs280bn.

Tax body admits half-yearly collection target missed by Rs114bn

According to the FBR, the tax collection in the first six months of fiscal year 2019-20 stood at Rs2,083bn, 16.3pc higher than the collections made during the same period last year.

The FBR has witnessed the highest growth rate in tax collection since 2015-16 in the two quarters of the current fiscal, the statement says. The original target was Rs2,367bn which was later revised to Rs2,197bn in view of subdued economic activities during the first quarter of the fiscal, but the suppressed economic trend continued for the second quarter too. However, even the revised target was apparently missed, by no less than Rs114bn. Despite massive drop in import tax collections, the shortfall stood at Rs114bn due to improved collections mainly from Sales Tax and Income Tax.

With expected upturn of economic activity in the last six months of the fiscal and a likely stabilisation of imports, it is expected that the FBR is going to collect an unprecedented amount of taxes this year without disrupting and distorting economic activity, the statement says.

According to the FBR, efforts have been enhanced to increase tax collections from the domestic side and the tax body has managed to shift its tax dependence on import taxes from 56pc to around 40pc this year.

The tax body has come under fire in recent days for the growing shortfall in its revenue collection efforts. Recently the adviser to the prime minister on finance personally visited the headquarters of the FBR to inquire into this failure. Reports emerging from the meeting afterwards suggested it was a testy affair, with the adviser inquiring about the plans of the tax authorities to avert further such slides in the remaining six months of the fiscal year. Reportedly he also asked about the vision for reform of the FBR that the bodies cadre had promised to help develop as part of an agreement with the prime minister in return for ending their opposition to the PM’s envisioned reforms.The massive revenue collection target that the body is chasing is at the heart of the IMF programme that the government is currently implementing. The adviser’s visit came days after the first review of that programme was successfully passed by the IMF board, but the “quality” of revenue collection was highlighted as an area of concern going forward.

Business circles fear that further revenue shortfalls will necessitate midcourse measures such as a hike in the sales tax rate to compensate. These government is also reluctant to add to the tax burden already being borne by the business community, and the citizenry at large.

Published in Dawn, January 5th, 2020