FBR exceeds July target by Rs68 Billion

The Federal Board of Revenue (FBR) has exceeded July’s tax collection target by a wide margin of Rs68 billion on the back of more than half the collection at the import stage, which put it on a solid footing to chase the annual target of Rs5.829 trillion.

But more than half of the tax collection at the import stage is in line with the government’s new policy of relying on indirect taxes to achieve the annual target after it could not broaden the tax base that remained skewed during its first three years.

The FBR collected over Rs410 billion during the first month of fiscal year 2021-22 as against the monthly target of Rs341.7 billion, according to statistics compiled by the revenue board on Friday. The monthly collection was equal to 7% of the annual target.

The Rs410 billion provisional collection was higher by 36.5% or Rs109 billion over the revenue generated during the same month of last fiscal year.

Like the previous fiscal year when the FBR had exceeded July’s target by Rs57 billion, it has again taken a good start of the new fiscal year.

Out of the Rs410 billion, the FBR collected Rs210 billion at the import stage, which was equal to 51.3% of the total monthly collection.

The heavy reliance on import taxes and duties may cause inflation in the country, as taxes paid at the import stage are usually recovered by increasing the prices. These import taxes are also causing an increase in prices of electricity and petroleum products.

In the budget, the government had imposed 17% sales tax on crude oil import. It also doubled customs duty rate from 5% to 10% on the import of petrol to achieve the tax target.

There were also some other indirect measures in the budget like 75 paisa federal excise duty on each telephone call exceeding five minutes.

The share of income tax in total revenue sharply fell to just 32.7%, which has put more burden on people who have less capacity to pay.

The FBR collected 67.5% or Rs277 billion in indirect taxes – general sales tax, customs duty and federal excise duty which are the three main sources of indirect taxes.

The Pakistan Tehreek-e-Insaf (PTI) election manifesto had promised to increase the share of direct taxes to 45% from 38%.

Finance Minister Shaukat Tarin had said last month that being a developing country, the share of indirect taxes would increase in the short term.

Tax-wise collection

The FBR collected Rs134 billion under the head of income tax – up by Rs31 billion or 30% over the same month of last year.

The collection was Rs40 billion higher than the target as the FBR had set a low income tax target due to poor performance in the last fiscal year. But advance income tax payments by banks helped the FBR surpass the monthly income tax target, said an official of the tax machinery.

The FBR showed 44% growth in sales tax collection in July, due to heavy reliance on import taxes. The tax machinery collected Rs190 billion in sales tax – higher by Rs58 billion.

However, 65% of the total sales tax collection was at the import stage in which the taxmen did not have any role.

Out of the Rs190 billion, an amount of Rs124 billion was collected at the import stage – up by Rs46 billion or 60%, according to the provisional figures.

The growth in domestic sales tax collection was 25%, which suggested the picking up of economic activities in the country.

The federal excise duty collection stood at Rs22.3 billion, which also increased over 20% and was equal to the monthly target.

Pakistan Customs collected Rs66 billion under the head of customs duty – up by nearly 35%.

One of the reasons behind the disagreement between Pakistan and the International Monetary Fund (IMF) over the completion of sixth review is the IMF’s position that there was between Rs300 billion and Rs350 billion gap between the Rs5.829 trillion target and the measures taken to achieve that.

The finance minister has said that the FBR can deliver the target without taking additional revenue measures.