Govt revenues: Tax collection rises 7%, but falls short of target

The tax collection rose 7% to roughly Rs1.7 trillion in the first seven months of the current fiscal year, but stood significantly below the target, compounding fiscal woes of the government that is already facing problems due to the drying up of Coalition Support Fund.

The Federal Board of Revenue (FBR) provisionally collected Rs1.69 trillion in July-January 2016-17, falling short of the target by around Rs140 billion, according to officials of the tax machinery.

The FBR had been tasked with collecting Rs1.83 trillion in the first seven months of the fiscal year.

The government has set the annual tax target at Rs3.621 trillion, which is 16% higher than the revenue receipts in the previous fiscal year. However, the FBR has already declared the goal unrealistic, saying the finance minister set the target without taking the revenue body on board.

In terms of growth, the July-January tax collection was 6.9% higher than the comparative period of the previous year when the FBR received Rs1.586 trillion. It needs a 16% growth to achieve the annual target.

Tax authorities have already blamed the federal government for the revenue shortfall, saying the changes in tax policies at the time of annual budget and during the course of the year have adversely affected the revenue collection drive.

The FBR blames the government for not increasing prices of petroleum products in the past, which has adversely affected sales tax collection.

The government, however, has started increasing the prices of petroleum products on a fortnightly basis aimed at making up for some of the loss it has sustained so far.

In the last fiscal year 2015-16, the government had generated Rs676 billion from the sale of petroleum products on account of sales tax, federal excise duty and petroleum levy, according to the Fiscal Policy Statement 2016-17.

The collection was Rs112 billion or one-fifth more than the preceding year, showed the statement.

According to FBR’s estimates, it can potentially collect Rs575.8 billion from the sale of petroleum products in the current fiscal year. At the current sales tax rate, it is anticipating a shortfall of at least Rs100 billion.

The FBR is currently working without a full-time chairman. The government has given the charge to FBR Member Inland Revenue Operations Dr Mohammad Irshad after Nisar Muhammad Khan retired on January 18.

The growing shortfall in tax revenues has hit the government’s budgetary projections and its first-half budget deficit stood at roughly 70% of the annual target.

The government is already facing problems in balancing its books due to non-disbursement of the Coalition Support Fund by the United States.

It has booked $1.7 billion worth of CSF disbursement for the current fiscal year but chances of disbursement are very low due to estranged relations with the US, say sources in the Ministry of Finance.

In case, the CSF is not released, the budget gap will widen further by half a percentage point in relation to the gross domestic product (GDP).

For the current fiscal year, the annual budget deficit target has been set at 3.8% of GDP.

In order to bridge the shortfall, the FBR has already taken heavy advance taxes from commercial banks and oil and gas companies, sources say.

In January alone, the FBR provisionally collected Rs225 billion in taxes against the target of Rs235 billion. The target was fixed at the lower end.

Published in The Express Tribune,February 1st, 2017.