Tax shortfall widens to Rs725b
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Pakistan's tax shortfall widened to Rs725 billion in the first nine months of the current fiscal year despite slowing refunds, days after it committed with the International Monetary Fund (IMF) to achieving the annual goal of increasing collections to 10.6% of the size of national economy.
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.
Prime Minister Shehbaz Sharif said this week that the IMF had agreed to reduce the annual tax collection target of Rs12.97 trillion to Rs12.33 trillion, a reduction of Rs640 billion. The PM claimed that the IMF wanted to cut the target to Rs12.1 trillion but he did not agree.
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.
The prime minister doubled the size of his cabinet, added more departments, like the Public Affairs Unit, to an already bloated size of the government and approved increase in salaries of cabinet members. The government this week also approved to fund a Punjab-centric motorway project costing Rs436 billion, which was in violation of the commitment to the IMF.
The FBR tried everything but almost all of its initiatives like the threat to arrest the chief finance officers of companies, banning economic transactions by ineligible persons and tracking of businesses failed to materialise.
The National Assembly did not approve a bill to ban economic transactions while the FBR chairman's initiative to boost the morale of young officers by giving them 1,300cc cars also became disputed and ended prematurely.
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 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.
Income tax collection amounted to Rs4.11 trillion during the first nine months of FY25, Rs277 billion more than the nine-month target. The burden was shared by the salaried class and the corporate sector, as retailers and landlords still remained under-taxed.
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 government had immensely increased the sales tax burden in the budget, including slapping taxes on milk and other consumable goods.
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.
The Prime Minister Inspection Commission is looking into system breach, which led to the manipulation and tampering of more than 10,000 goods declaration forms. The Pakistan Single Window, the government-owned company responsible for handling customs data, had admitted the tampering but denied that its officials were involved.
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