The Federal Board of Revenue (FBR) has made a steady start to the fiscal year by achieving its first-month target, collecting Rs755 billion in revenues on the back of improved performance in indirect taxes, as both the tax machinery and traders await clarity on several unresolved issues.
The provisional collection exceeded the monthly target of Rs748 billion by around Rs7 billion, according to figures compiled by FBR headquarters on Thursday evening. Compared to last year, the collection was Rs96 billion, or nearly 15%, higher, which was a decent growth rate but still falling short of the pace required to meet the annual target.
The government has set a Rs14.13 trillion revenue target for the current fiscal year, requiring a 20% increase over the previous year. The FBR is relying on improved enforcement measures and the recovery of taxes tied up in litigation. The business community has agitated against new legal powers allowing arrests on suspicion of sales tax fraud. It has also opposed legal provisions permitting the addition of half of all cash expenses over Rs200,000 back into taxable income. Another contentious issue is the deployment of tax inspectors at business premises, which contradicts the government's claim of digitally tracking sales and production.
Last week, the business community strongly criticised the government's attitude, objecting to being labelled as "thieves" and "mafias."
To resolve issues with the business community, the government formed a committee that recommended reconciliatory measures to Prime Minister Shehbaz Sharif. These included raising the cash expense threshold to Rs2.5 million and establishing a grievance committee to address complaints of excessive surveillance of business premises. The FBR had pledged to issue an explanatory note by July 24 to address the business community's concerns, but it failed to meet the deadline.
FBR Chairman Rashid Langrial did not attend office this week due to "health reasons." However, he continued to hold meetings virtually and attended one session at the finance ministry with foreign diplomats. Dr Hamid Ateeq Sarwar, FBR's Member Inland Revenue Operations, officially retired from service last week but is still attending office as the government moves to reappoint him on a contractual basis.
It is expected that Dr Sarwar will continue overseeing the operations wing regardless of his formal title. However, there is uncertainty in this regard, as the acting charge of Member Operations has been given to the Member Administration, who is reportedly not handling the operational duties. Pakistan's economy continues to experience sluggish growth due to stabilisation policies implemented on the instructions of the International Monetary Fund (IMF). Despite this, the FBR has managed to extract revenue from the system.
Details show the FBR met its collection targets for sales tax and customs duties but missed the goals for income tax and federal excise duty. Tax authorities collected approximately Rs300 billion in income tax, Rs15 billion short of the target. However, the collection was still Rs16 billion, or 5.6%, higher than last year. One reason for missing the target was the large advance payments collected in June to help meet the revised annual goal. The government has also slightly reduced income tax rates for salaried individuals.
Sales tax collections reached Rs302 billion, which were Rs12 billion higher than the target, and were Rs46 billion, or 18%, higher than the previous year. Federal excise duty collections stood at Rs46 billion, Rs5 billion below the target. The shortfall was attributed to high duty rates on various products, including beverages, which adversely affected company sales. Nonetheless, excise duty receipts were Rs9 billion, or one-fourth higher than the previous year.
Customs duty collections surged to Rs106 billion, exceeding the target by Rs14 billion. The increase was partly due to the clearance of cargoes previously withheld by importers in anticipation of reduced duties. The collection was also Rs25 billion or nearly one-third more than the last fiscal year. Customs duty revenues are directly tied to import volumes, which in turn depend on foreign currency availability.
Imports are expected to accelerate as the government gradually opens the economy to foreign competition by lowering import tariffs.
