The move likely to surpass Rs580 billion target



 Apr 11 - 17, 2005



While a full quarter of the current financial was still in hand, the Central Board of Revenue (CBR) has not only matched the revenue collection target for the period but has managed to exceed the actual target during first nine months of the year. So far, it has collected over Rs400 billion by the end of March 31, 2005 exceeding by Rs2 billion of the targeted amount.

The tax collecting authorities were confident to hit the target of Rs580 billion, set for the full year ending June 30, 2005.

During the first half of the current fiscal, the CBR had exceeded the six monthly targets by Rs11 billion as the amount collected during the said period was estimated at Rs261 billion as against the set target of Rs250 billion.

During the last quarter, the total collection has been about Rs139 billion. In the remaining three months (April-June), the CBR is required to collect Rs180 billion to meet the target of Rs580 billion.

Originally, the revenue target was revised to Rs590 billion reportedly on the advice of IMF review committee in September last.

The tax-wise details confirm that the direct tax revenue has increased by 14.2 percent during this period reaching to Rs119.2 billion against Rs104.4 billion last year. The overall sales tax collection, during the first nine months has reached Rs164.0 billion, indicating a growth of 5.3 percent over the last year. Within sales tax, 14.6 percent growth has been observed for the import stage. The collection on account of customs duties has gone up to Rs79.3 billion against Rs62.8 billion during past year, indicating a growth of 26.1 percent. Similarly, the central excise duty collection has increased by 17.3 percent during July-March, 2005 by collecting Rs35.7 billion. The provisional collection of March 2005 stands at Rs57.2 billion with the break up of Rs18.8 billion as sales tax, Rs11.3 billion as customs, Rs4.2 billion as central excise and Rs22.9 billion in direct taxes.

Obviously, the CBR seems to be more satisfied over its performance, the independent economist, however, believe that this increase in revenue generation has been mainly because of growing imports.

Though all segments of the taxes have shown improvement yet the custom duty and sales tax at import stage have emerged as the main contributors to the improved revenue collection.

The break down of the target of Rs580 billion for the current financial year indicates that the Board has to collect Rs181.9 billion in the form of direct taxes, Rs103.2 billion from customs duty, Rs249 billion sales tax and Rs47.7 billion on account of excise duty.

The financial analysts were of the view that it should not be so difficult for the CBR even to go for an amount of Rs600 billion in the backdrop of the economic turnaround and more vibrant corporate sector.

An increase in the import of about $3 billion during the year should be suffice to the additional revenue collection of Rs20 billion to fill the gap between the original target of Rs580 billion and the revised figures of Rs600 billion.



The revenue collected on imports has the potential to produce more revenues provided some effective mechanism to check under invoicing was developed by the CBR. It is usually observed that the government was losing huge revenues due to unchecked under invoicing by some unscrupulous importers. Though the increased imports may widen the trade deficit pulling pressure on foreign exchange reserves on one hand, and on the other hand these imports would certainly reinforce economic activity especially in the exports regime, which will ultimately generate more revenue in the longer-term.

Commenting on the unprecedented $3 billion trade deficit in the first 9 months of the current financial year, Dr. Ashfaq Hasan Khan, the spokesman of the Ministry of Finance was of the view that it is neither unusual nor formidable for the economic development of the country as such a gap helps generating economic activity in the overall economic scenario of the country.

Pakistan is witnessing an accelerated level of economic growth, much beyond the initial outlook for the current financial year. Therefore, the rising level of economic activity is bound to increase the demand for imports at a much faster rate than it was anticipated, Ashfaq observed.

He said the imports at a larger scale were largely driven due to 32 percent increase in import of machinery and equipment, a good sign for economic growth of the country. Government on its part was also confident that the prevailing trend will definitely lend a supporting hand to attain the impressive growth rate of 8 percent in next two years.

It is, however, painful to observe that the CBR was depending for its revenue collection drive on the indirect taxes rather than striving for broadening the base of direct taxes by bringing the potential tax payers into the tax net.

Surprisingly, out of the total revenues collected in Pakistan, the direct tax hardly contributes around 30 percent in the annual target set in the budget.

Since the indirect taxes are comparatively easy to recover, the governments in the past preferred to choose the easy way of collecting revenue through indirect taxes. Contrary to the claims made by the governments in the past to reduce the sufferings of the poor, they continued to add burden on the poor by treating the rich and the poor with a same yardstick of indirect taxes, the weak system finds it difficult to tame the powerful and influential wealthy class in the tax regime.

The poverty which rising at an alarming pace in the given circumstance, it is the time for the decision makers to concentrate more on broadening the tax net by bringing more and more tax evaders into the net of direct taxes. Burden of indirect taxes coupled with mounting inflationary pressures is hitting hard to the purchasing power of the common man. All basic needs essential for life especially the food items and the medicines needed to be exempted from sales tax.

In its drive to identify new taxpayers, the CBR has detected over 18000 tax evaders. The drive should be followed more vigorously as the number of tax evaders as well as avoiders was still much higher in the country. Relying on indirect taxes should be reduced gradually by intensifying drive for enhancing the contribution of the direct taxes. The number of registered taxpayers of 1.2 million out of a population of 150 million is far less than the world average.