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Nov 26 - Dec 02, 2001

According to the final figures of revenue collection during the first 4 months (July-Oct 2001) of the current financial year, the total collection amounted to Rs. 110 billion as against the original target of Rs. 122 billion and the revised target of Rs. 117.7 billion showing a minimum of shortfall of over Rs. 7 billion.

The revenue receipts during the first 4 months of the last fiscal year amounted to Rs. 112.98 billion showing a decline of about 2.16 per cent as against an expected increase of about 10 per cent during the current financial year.

In view of the shortfall in the month of Oct 2001 the target for Nov. has been brought down to Rs. 33 billion from Rs. 36 billion estimated earlier, disclosed a source in the CBR adding that revenue targets are always growth oriented and, as such, it has to be brought down in view of the prevailing uncertain situation." The target of Rs. 33 billion has been set in view of unidentified extent of revenue losses. The major impact of the current crisis has hurt collection of custom duty and sales tax at the import stage and temporarily caused suspension of import/export activities at the bordering custom stations in NWFP and Balochistan, he added.

Official figures released by Central Board of Revenue (CBR) showed that revenue under the head of direct taxes registered a growth of only 1.6 per cent and stood a Rs. 34.22 billion against Rs. 33.68 billion over the corresponding period last year, while under the head of indirect taxes, the revenue receipt declined by 3.8 per cent to Rs. 76.31 billion against Rs. 79.29 billion it netted during the same period last year.

According to final figures, the tax authorities have collected Rs. 34.22 billion during the July-October period against Rs. 35.68 billion during the same period last year, registering a marginal increase of 1.6 per cent.

Under the head of sales tax, Rs. 47.8 billion have been collected this year against Rs.43.25 billion over the corresponding period last year, registering a growth of 10.6 per cent.

Similarly, under the head of customs Rs.14.88 billion have been collected against Rs.19.02 billion during the same period last year, showing a decline of 21.7 per cent.

The tax authorities have collected Rs.13.62bn under the head of central excise duty during the first four months against Rs.17 billion it netted during the last year.

The current financial year seems to have begun with a disappointing performance of the CBR. It was perhaps for the first time in the history of Pakistan that the revenue target for the current financial year (2001-2002) was revised downward by Rs. 13 billion during the first quarter. As per practice in the past, the successive governments had been fixing ambitious revenue targets in the budget and then trying hard to convince the donors that the target will be met. It was always by the end of 3rd quarter that the Finance Ministry would publicly admit the targets were unrealistic and impossible to achieve.

A revenue target of Rs.457 billion was fixed for the current fiscal. It was good on the part of the government that only in view of two months (July and August 2001) performance, the government realised that the target fixed were on the high side and needed downward revision. In consultation with IMF mission which visited Pakistan in September the government agreed to a revised target of Rs. 444 billion for the current financial year. According to the independent analysts, however, even this target appeared ambitious in view of July-October performance.

As a matter of fact we have never achieved the annual tax collection target for no apparent reason. This time, however, there are some cogent reasons for the slow down. The negative economic fallout of Afghan war and the general turmoil in the region has forced the Musharraf government to revise downward its GDP growth and revenue collection targets. However, what is apparently being done by our economic managers is to fudge the figures to project a watered-down version of the shortfall. The government proposes to cut further the revenue collection target of Rs. 444 billion for the current fiscal year by Rs.12-14 billion in view of the steep slide in imports. Prior to September 11, the projected financing gap for the current year had stood at $ 3.2 billion, which has now been revised upward. Meanwhile, Islamabad expects to receive assistance in the shape of cash and a further debt rescheduling from multilateral lending agencies, totalling $ 8 billion and spread over three years, with $1 billion in cash coming this year.

The revised revenue collection target of Rs.444 billion was itself a revision of an earlier target of Rs.457 billion, while last year's collection was Rs.394 billion. It seems that if the present trend continues, with a shortfall of about 4 per cent in July-October of this fiscal, the total collection will be short of last year's collection by Rs.15-20 billion, instead of Rs.12-14 billion, as protected by our economic managers. Actual collection will be around Rs.380 billion. Where will the money to fill the gaping hole of Rs. 77 billion in the budget come from? Rs.61 billion will come from the extra aid inflows, but what about the rest? The GDP growth target is also being revised downward at 3.7 per cent, while the ADP and IMF estimates have put it at as low as 2.5 per cent. Any of the usual slashing of development spending will have a negative impact on the GDP growth.

Cutting the interest rates and thus cutting domestic debt servicing costs would be a better strategy, especially with a resurgent rupee. Still better, savings thus secured can be utilised to increase the volume of bank borrowings to fund more development spending. This can help boost the GDP growth, which in turn would limit the damage to revenue. However, before planning properly, it would be best if the Finance Ministry started using realistic, rather than rosy, figures for is macro-economic management policies, because they now fool no one.