ISLAMABAD: The Federal Board of Revenue (FBR) recorded a 30 per cent increase in tax collection during the first seven and half months of 2023-24 owing primarily to the country’s historical inflation rate.

In absolute terms, the FBR collected Rs5.150 trillion from July 1, 2023 to mid-February compared to Rs3.973tr in the corresponding period of FY23. During this time, tax refunds increased by more than 28pc.

The FBR’s performance report was released by the finance ministry on Tuesday at a time when the caretaker finance sought approval from the interim cabinet to overhaul the top administrative structure of tax machinery, which, according to the report, performed well by showing impressive growth in collection in the first fortnight of February.

Provisional data released showed that there was a 17pc growth recorded year-on-year in the first month of the current fiscal year, which increased to 36pc in August 2023, 21pc in September, 37pc in October, 38pc in November, 34pc in December and 25pc in January.

Domestic taxes increased by around 40pc, while import duties and related levies rose 16pc between July 1, 2023 and January 2024. Revenue growth accelerated when GDP recovered and FBR collection was scrutinised more closely.

The increase in import taxes has slowed due to a variety of reasons, including downward revisions in import duties over time and, more recently, restrictions on import licences imposed by the State Bank of Pakistan to contain the balance of payments position in the aftermath of foreign exchange shortages.

The revenue collection from imports does, however, take into account the impact of improvements in import value, which resulted in Rs151 billion in collections, as well as the anti-smuggling drive, which increased by about 69pc in FY24 compared to FY23. There is potential to improve anti-smuggling efforts by boosting the customs force in Balochistan, which currently has just 378 anti-smuggling workers which undermines enforcement efforts.

The revenue generation from domestic taxes is a good change. Domestic tax collection now accounts for over 64pc of all revenues collected in the current fiscal year, owing mostly to inflation rates of roughly 30pc. Concurrently, the share of import tariffs has fallen to 36pc from more than 50pc just three years earlier.

In the first seven months of the current fiscal year, income tax collection increased by 40pc. The primary driver of this growth is high collections from banks, petroleum products, textiles, power, food goods, and services.

Despite the country’s greatest inflation rate in history, sales tax revenue increased by just 19pc in seven months of the current fiscal year. Petroleum items, power, food products, autos, iron and steel products, and chemicals are the primary sources of revenue for sales tax collection.

The FBR excise duty collection increased by 61pc, primarily from tobacco, cement, beverages, airlines, fertilisers, and autos.

In the first seven months, customs tax collection increased by 14pc. This increase was achieved through revenue collection from POL goods, automobiles, iron and steel items, electronics, and food.

Published in Dawn, February 21st, 2024