ISLAMABAD: The Federal Board of Revenue (FBR) collected Rs209 billion additional during the first five months of this fiscal year mainly due to structural changes in taxation system, procedures and withdrawal of exemptions.

Data shows that these much- needed reforms in taxation system are already bearing fruit despite a huge import compression of around $5bn and slowingdown of growth. The FBR estimates a tax cost of Rs56bn for each $1bn-cut in imports.

The unprecedented initiatives were introduced to remove structural flaws in sales tax, federal excise duty and income tax in the budget 2019-20.

The FBR collection grew by 16.4 per cent in the first half of this fiscal year.

Income tax, sales tax and the federal excise duty (FED) showed a growth of 19pc, 25pc and 23pc respectively. The highest growth rate has been registered in the sales tax regime.

Sectoral contribution shows that the wholesale and retail trade contributes only Rs16bn in tax revenues despite having 18pc share in GDP.

The agriculture sector with 18pc share in GDP has a negligible contribution in taxes. Similarly, informal service sector has a share of 20pc in GDP but is not contributing much to exchequer.

FBR spokesman Dr Hamid Ateeq told Dawn that several initiatives were taken to remove these imbalances. However, he said, change in this tax base is still inundated by constitutional issues, sovereign agreements and hard to tax informal and trade sector. The real picture will emerge when import of raw materials and capital machinery picks up and the economy goes back to its full potential stage, he added.

On the income tax side, he said, return filing has shown a growth of 35pc which bodes well both for taxpayer compliance and for revenue generation.

The major contribution in sales tax came from the cancellation of zero-rating on five sectors – textile, sports, surgical goods, carpet and leather – in the last budget. FBR received an additional Rs55.21bn or 948.9pc growth from these sectors as revenue reached to Rs61.029bn in July-Nov this year as against Rs5.818bn over the corresponding months of last year.

The second biggest contribution was noted in sales tax collection on POL products.

The addition of goods to third schedule – single stage taxation at retail price for finished goods – helped pocket extra amount of Rs13.51bn or 18.5pc growth as revenue reached to Rs86.571bn as against Rs73.061bn over the last year.

The changes in procedures for collection of sales tax on steel and edible oil also contributed an additional amount of Rs7.744bn or 14.6pc as revenue reached to Rs60.68bn as against Rs52.93bn over the last year.

The increase in the rate of sales tax on sugar yields additional revenue of Rs3.76bn or 55.1pc growth on a year-on-year basis. The withdrawal of exemption on packaged food items contributed an additional Rs3.632bn or 34.6pc growth on a year-on-year basis. The change in definition of cottage industry also led to a new collection of Rs1.769bn in the first five months of the current fiscal year from a year ago.

The change in rates of federal excise duty on three main products-cigarettes, cement and sugary drinks led to substantial increase in collection in first five months. FBR received an additional Rs3.832bn or 13.5pc growth year-on-year from cigarettes, Rs7.302bn or 35.9pc growth from cement and Rs2.8bn or 22.9pc year-on-year from sugary drinks.

In the income tax measures, the highest contribution came from higher withholding tax rates for non-filer which up by 139.1pc or Rs27.884bn during the first five months as collection reached to Rs47.937bn as against Rs20.053bn over the last year.

The second contribution came from the rationalisation of tax rates for salary class which up by RS19.241bn or 77.8pc on a year-on-year basis. These rates were revised to reduce the Rs100bn impact that the former government introduced ahead of the election.

Published in Dawn, January 12th, 2020