Amid poor performance in increasing the tax base, due to a 34% reduction in tax returns, the Federal Board of Revenue (FBR) managed to meet its four-month target of Rs 2.14 trillion, but may struggle to maintain momentum going forward.

The lackluster performance in broadening the tax base forced Finance Minister Ishaq Dar, for the second time, to extend the filing date for tax returns by another month. The new date is now November 30 – a period during which FBR must get 1.3 million more rupees in returns just to reach the number from previous years.

According to FBR officials, against the July-October target of Rs 2.143 trillion, the FBR collected Rs 2.148 trillion in taxes. Compared to the same period last year, tax collection was 16% higher at Rs 305 billion, a pace below the prevailing inflation rate of 23%. But enough to keep the taxman on track for the first four months of the fiscal year.

In the first four months of the previous financial year, the FBR had collected 1.84 trillion rupees in taxes. However, due to the slowing economy, it looks like the FBR could miss its fiscal targets in the coming months.

The FBR failed to meet its monthly fiscal target of Rs 534 billion, which it missed by Rs 22 billion mainly due to a contraction in imports. The monthly target was missed despite achieving a growth rate of 15% on collection of Rs445 billion last October.

The Inland Revenue Service (IRS) exceeded its July-October target, partially offsetting the impact of weak collection by the Customs Department.

The tax apparatus failed to broaden the tax base, with the number of taxfilers remaining below 2.5 million, a 34% reduction in the base from the previous tax year . For the tax year 2021, up to Rs 3.8 million had been deposited.

Pakistan had assured the International Monetary Fund (IMF) that it would add a minimum of 700,000 additional taxpayers to the base by widening the net to encompass traders. Instead, it is lower than the previous year’s number by more than 1.3 million rupees. Indeed, the base of the FBR is two million less than its own conservative target.

On Monday, the finance minister granted a further extension to the filing date, extending it to November 30. Last month, Dar announced a one-month extension of the legal deadline for filing tax returns in hopes that the number will increase. significantly. However, only 650,000 more returns were filed in the month ended.

Although it hired celebrities to convince people to fulfill their national obligations, the FBR failed to achieve the desired results. The lack of determination to go after non-compliant citizens, coupled with the weakness of the ruling alliance, which seems to be struggling to appease people due to its rapidly eroding popularity, are some of the main reasons why the objectives were not achieved.

The tax authorities are to collect 7.47 trillion rupees in the current financial year, which requires a growth of 21% from the taxes collected in the previous year. In the FY23 budget, the government imposed over Rs 1 trillion in additional taxes for oil royalty, income tax, sales tax and federal excise duties .

Against the annual target of 855 billion rupees, oil royalty collection remained below 100 billion rupees in the first three months of the current financial year.

Recently, the IMF asked Pakistan to impose 600 billion rupees of new taxes to reach 9.5% of the tax-to-GDP ratio of RBF. The potential shortfall in the coming months could expose the government to further pressure from the IMF.

Customs duty collection, which was a cornerstone of RBF performance in the past, remained below target for the fourth consecutive month. Against the four-month target of Rs 343 billion, the FBR has collected Rs 306 billion in customs duties. This was mainly due to import restrictions as the collection of dutiable imports also fell by 10% in rupees despite an appreciation of the greenback.

Income tax collection in four months amounted to Rs886 billion – up Rs259 billion or 41%. Sales tax collection has increased to 854 billion rupees, which is higher only by 28 billion rupees or 2.7%.
The share of taxes at the import stage fell below 46% of total collection, due to an increase in income tax collection and a contraction in imports

National sales tax collection amounted to 298 billion rupees – up 42 billion rupees or 16% – in four months.

Published in The Express Tribune, November 1st2022.

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