The Pakistan Industrial and Traders Association Front (PIAF) stressed the need for reforming and simplifying the taxation system in consultation with the real stakeholders, as the FBR’s tax shortfall widened to Rs725 billion in the first nine months of the current fiscal year, days after it committed with the IMF to achieving the target of increasing collections to 10.6% of the size of national economy.
The PIAF Chairman Fahimur Rehman Saigol, Senior Vice chairman Nasrullah Mughal and Vice chairman Tahirm Manzoor Chaudhry in a joint statement said that the FBR’s reforms initiatives are not bearing fruit, as the revenue collecting agency could increase the number of sales tax return filers by just 8 percent in first six months of the current fiscal year, mainly due to rise in the type of those filers, who haven’t paid any tax, implying that bad governance and weak tax management of the tax department still persist. It is unfortunate that just 30 percent of the total sales tax return filers are paying taxes while 70 percent of the filers have paid nil tax, he said.
In March alone, the government added more than Rs100 billion to the tax shortfall, putting in danger its commitment that the shortfall against the original annual target would not be more than Rs640 billion.
The Federal Board of Revenue (FBR) provisionally collected Rs8.44 trillion in taxes till the last working day of March, before the commencement of Eid holidays, according to tax authorities. The collection was around 28% higher than the previous fiscal year but was not enough to stay on track. Revenues fell short of the July-March target of Rs9.17 trillion by Rs725 billion, they added. Tax officials said that the collection may improve by over Rs7 billion on Saturday from ports but it would not be sufficient to bridge the yawning gap, which was far higher than the assurance given to the IMF last week.
The IMF’s revision is solely on account of slower-than-estimated economic growth and inflation. The overall tax-to-GDP target of 10.6% remains unchanged.
There has been over-emphasis on increasing taxes, which has shifted focus away from growing expenditures that are increasing at a pace of 24% during the current fiscal year despite single-digit inflation.
For March, the FBR’s target was Rs1.219 trillion. However, despite taking advances and drastically slowing refunds, it could only cross Rs1.1 trillion till Friday evening. The FBR paid Rs34 billion in refunds, down by Rs37 billion, or 52%, compared to March last year. Overall, the nine-month refund payments were Rs384 billion, hardly Rs6 billion more than last year.
The PIAF leaders said that the IMF has forced the country to impose new taxes, primarily burdening the salaried class and levying taxes on nearly all consumable goods, including medical tests, stationery, vegetables and children’s milk.
For the July-March period, the FBR missed its targets for sales tax, federal excise duty (FED) and customs duty but exceeded the income tax target.
They said that the FBR half-heartedly pursued the Tajir Dost scheme but the IMF clarified that the scheme has remained operational. The IMF has cut the collection estimate of Rs50 billion from the Tajir Dost scheme. Sales tax collection stood at Rs2.86 trillion, Rs656 billion less than the target of over Rs3.5 trillion. Sales tax remained the most difficult area for the FBR and one of the reasons for the low collection was less-than-estimated growth in large industries.
The FBR collected Rs537 billion in FED, Rs143 billion less than the nine-month target. Customs duty collection stood at Rs926 billion, Rs208 billion below target. The collection was hit by lower-than-projected import volumes. It was also marred by the manipulation of goods declaration forms by importers in connivance with corrupt elements.
They said that the government’s new measures seem to be inadequate to convince people to file tax returns due to arm-twisting by the FBR, creating unnecessary controversy due to continuous raids on business premises.