ISLAMABAD: The government’s steps to deal with the external sector deficits may have begun to bear fruit, but it has yet to overcome the growing shortfall in revenue collection.

The figures during the first nine months of the current fiscal year show that aggregate revenue under the income tax, sales tax and federal excise duty (FED) reached Rs2.186 trillion posting a shortfall of Rs303 billion against the Rs2.488tr target set for the period.

However, during the same period, custom collections surpassed the set target of Rs509.3bn clocking in at Rs510.11bn.

Despite buoyancy in the customs collection, it is estimated that the annual shortfall in revenue collection from all taxes will be around Rs450bn by the end of the ongoing fiscal year.

Income tax revenues, including those collected at the import stage, recorded a shortfall of Rs178bn after total collections clocked in at Rs984bn against the target of Rs1.162tr for the period under review. Sales tax collection posted a shortfall of Rs116bn as the revenues reached Rs1.039tr against the target of Rs1.155tr projected for the first nine months of the current fiscal year. FED collections also posted a shortfall of Rs8bn as revenue collected reached to Rs163bn against the target of Rs171bn projected for the same period.

Poor revenue collection during the ongoing fiscal year is worrying since the tax base was already eroded by Rs90bn shortfall which was booked during last fiscal year’s collections. During the previous fiscal year, total collections clocked in at Rs3.844tr against the target of Rs3.935tr.

Moreover, the collection’s target for the ongoing fiscal year was set with 14 per cent growth in mind against the target set for the fiscal year 2017-18.

The decline in collections is mainly attributable to the pre-election measures such as the relief given to the salaried class leading to Rs40.5bn shortfall in income tax collection followed by Rs28.9bn from contracts of development budgets at the federal and provincial levels during the months under review.

In addition to this, the Supreme Court’s decision to suspend tax on mobile phone cards also led to a drop of Rs32.7bn in withholding tax collections. In June 2018, the SC suspended deduction of taxes on the top-up of prepaid cards by mobile phone service providers.

Furthermore, measures announced in the last budget presented by the PML-N finance minister also contributed to the overall shortfalls with Rs5.4bn drop in income tax from dividends, Rs2bn after the ban on non-filers to purchase vehicles and import compression which led to Rs8bn drop in the collection of withholding taxes.

The tax collection from cement dropped by Rs2.6bn, aerated water Rs3.1bn, and cars sales Rs3.2bn also contributed to the total shortfall after duty rates were lowered on several products in the last budget. Collections from petroleum products also dropped by around Rs51bn during the period under review whereas an additional Rs10.3bn was also lost following the replacement of LNG imports with furnace oil owing to the difference of tax rates.

Published in Dawn, April 13th, 2019